Human technology

Westpac cuts head office staff and shakes up senior ranks

Competitive pressures would lead to a further decline in net interest margins over the full year, the bank said. Margins are also under pressure as banks are forced to hold more liquid assets, reshaping their balance sheets as the Reserve Bank and APRA reduce the “committed liquidity facility”.

Westpac increased its provision overlays to $118 million “reflecting continued uncertainty related to COVID-19,” but overall it is optimistic about the recovery from the pandemic and reported an increase in retail spending at the end of January. Tough customer calls about omicron are “far from where we feared,” King said in a call with analysts.

The bank, which has pledged to cut costs by $8 billion, said spending fell 7% excluding notable items to $2.7 billion. He said he remains committed to his cost goal of $8 billion by fiscal year 2024.

Westpac was the best performing major bank on the ASX on Thursday morning; its shares traded up 2.5% at $21.12; shortly after noon, the shares rose 1.9%.

Departure of two senior executives

The bank is changing its structure and the leaders of the group. Westpac will combine its chief risk officer and group director for the financial crime, compliance and conduct roles.

The bank announced the departures of Mr Stephen, chief risk officer since October 2018, and Mr Vance, who was in charge of improving financial crime compliance after the bank was hit by breaches of the AUSTRAC in 2020.

Mr. Zanin, a Canadian who previously worked at Deutsche Bank and Wells Fargo and who is currently chief risk officer at the Federal National Mortgage Association (Fannie Mae), will take on a new role combining the positions of the two outgoing executives.

The changes were needed as AUSTRAC’s remediation work entered an implementation phase that required them to be adopted across all business units and by frontline staff, Mr King said.

More roles in human resources, finance and technology would be brought closer to the front line as the size of the head office is reduced. It will create two new divisions, Business Services and Client Services and Technology.

Carolyn McCann is Group Director for Business Services, while Scott Collary is the new Group Director for Client Services and Technology.

Loan quality remains strong at Westpac. Provided

Intense competition

A key target for analysts will be a tighter net interest margin, indicating competitive pressures in the banking sector as Westpac cut prices to chase volumes, although Mr King suggested that current offers for Westpac are not the sharpest on the market.

“We have started the year well and are seeing the cost benefits of our simplification programs,” said Chief Financial Officer Michael Rowland. “However, the environment remains very competitive and we continue to see pressure on margins.”

The margin squeeze is caused by higher holdings of non-earning liquid assets, as well as “competitive pressure in mortgage and business lending and the continued growth of low-margin fixed-rate mortgages,” it said. the bank.

“Given these competitive pressures, net interest margins are expected to decline further in FY22,” Westpac said in its statement to the stock exchange.

Non-interest income fell 6% from the quarterly average for the second half of last year to $929 million, while net interest income rose 2% to reach $4.2 billion.

Loan quality remains strong. Mortgage delinquencies have fallen and asset quality has improved. Common Equity Tier 1 capital of 12.2% is well above the new APRA benchmark of 10.25%.

Westpac said that if off-market buyout demand is insufficient, the bank plans to launch a market buyout to achieve a targeted $3.5 billion capital reduction.

Westpac’s stock price has underperformed other major banks by 7% over the past three months and 15% over the past year.

“The huge gap in expectations between Westpac and the rest of the industry opened up in the fourth quarter, but we expect this earnings season to reveal that the main earnings challenges are not confined to Westpac” , Citi analyst Brendan Sproules said this week in an earnings preview.

John Storey, UBS’s new banking analyst, says Westpac is his top pick in the sector with 20% upside potential as he begins investment banking coverage of the banking sector overnight .

“We believe the market is underestimating Westpac’s interest rate sensitivity and heading for higher rates supported by its still strong retail franchise,” Storey said.