Westpac’s CEO Peter King gave shareholders good news earlier this week, when he announced a 256% rise in profit when compared with last year, but these results, which he called “a promising start” belie the underlying problem the bank faces – core earnings are down and its mortgage growth is flat.
King has already started the process of sharpening the giant bank’s focus – selling off units including, possibly, Westpac NZ (which accounts for 15% of group earnings, and 12% of the group’s mortgage loan book). The list of potential divestments is growing daily – on Monday news broke that Westpac had hired Morgan Stanley to sell its wealth management business, including superannuation.
And while the sale of what the bank considers non-core business should allow more management time to be devoted to core business, that core business, at least in home loans, is losing market share.
If you compare the big bank’s mortgage growth to that of Macquarie, there are probably some important indicators on what steps King should be considering. Macquarie’s mortgage book has grown nearly $3 billion in the last calendar year – while gross movement in Westpac’s, according to AFR figures, has declined by the same amount over the last three halves.
Macquarie’s secret? The award-winning bank has achieved this by embracing the mortgage broker channel, giving rapid approvals, and having user-friendly technology. In the mortgage industry’s biggest survey – Brokers on Banks – Macquarie managed a fantastic approval score of 3.99 and were top for turnaround time. Westpac didn’t make the top 10 list at all – a worrying trend from a mortgage powerhouse that was in eighth position last year.
“Mortgage growth has been an issue, we’ve not kept up with the market and have lost share. We have more to do on service and response times,” Westpac’s CFO Michael Rowland said earlier this week. And the broker channel is not happy – some are reporting 12 days to get a decision for a salaried employee and over a month for self-employed clients.
Macquarie’s technology appears to have allowed it to scale rapidly during the current housing boom – at Westpac there is still heavy reliance on manual checking. It added more than 1,900 staff during the first half of the financial year to help cope with mortgage demand, deferrals and compliance needs.
“The computer will do a lot of that but there’s always a person doing some of the checks at the moment,” King said.
Westpac, although acknowledging that it will have to spend billions on tech, is already saying that it will slash consultant and contractor growth by $200 million over the next few years.
“And then the third bit is improving and digitising our banking services. So, we’re still relying on a lot of consultants and external providers to help us. That’s a source of saving,” said King earlier this week.
There are signs, however, that Westpac is heading in the right direction – in the last half, gross mortgage numbers have improved considerably.
So as King tries to get the mortgage lending bank back on a growth track, the question is – can he get approval times improved for broker clients, and can he get the bank’s profits back to the heady $7 billion that it last achieved in 2011 – a decade ago?
As soon as the current mad rush for mortgages slows down, the bank will need all the third party help it can get. Right now, as the latest Brokers on Banks survey shows, Westpac isn’t even in the charts.