Westpac’s profit will fall in FY2024, slump in 2025 and plateau in 2026, a harsh report on the bank by analysts Matthew Wilson and Christian Mazza from Jefferies concludes.
Such is the cynicism of this pair of iconoclastic analysts, Jeffries have placed a price target on the bank of $20. This compares with yesterday’s share price close of $32.79, which reflected a rise of more than 2 per cent on the day.
So Jeffries anticipate a share price wipeout of 33 per cent if and when the market echoes the Wilson Mazza thesis.
Jeffries lead off their commentary on the bank with a jaundiced perspective on the merits of the selection of business banking boss Anthony Miller as the next CEO. Miller is slated to replace Peter King in mid-December.
“Westpac has been hampered by more than 15 years of underinvestment in the foundational operating infrastructure of the enterprise as it prioritised short-termism” Wilson and Mazza wrote.
“This has manifested in a series of operational issues, diminished franchise positioning and board and management changes.”
In late March, Westpac launched 'Unite', an IT simplification program that promises to decommission 120 applications (down to 60) and to build customer-centred technology while retaining two core systems and adding no new kit.
The bank have said the budget is in the order of $3 billion and within WBC's annual $2 billion investment envelope from FY20224-28, equal to around 30 per cent of spend expensed.
Anthony Miller the Jeffriees pair label as “a lawyer by training and an investment banker by vocation, having spent 3 years at Deutsche Bank, 16 years at Goldman Sachs and 2 years at CSFB.
“This arguably narrow skill set has not often proved successful in the dramatically culturally dissimilar world of commercial and retail banking.
“Furthermore, whilst the narrative will focus on the ubiquitous 'customers', WBC's challenges are more in the back office where complexity, duplication, unwieldy process and siloed culture drove adverse outcomes.
“Miller must therefore adapt to execute operational and digital excellence to reform the unfashionable parts of banking — technology, operations and the middle and back offices” – implying he may well fail to do so.
Wilson and Mazza forecast that Westpac’s full-year core or pre-provision earnings this year will fall from $11.0 billion in FY2023 to $10.2 billion and then fall to $10.1 billion in 2025 as the credit cycle bites.
The bank’s return on equity they see retreating to 8n per cent, the lowest of its peers.
Talk in the market is that Anthony Miller, as with Peter King in 2020, is very much a second-best choice.
Stephen Gregg, the bank’s chair, is believed to have prioritised a commercial banker with international experience in the CEO search, and if that person had experience as chief information officer all the better.
Westpac’s board baulked at paying the market rate, and fell back on Miller as the strongest internal candidate.