Sharechat Logo

BT new weapon in WestpacTrust's silent offensive

Friday 30th August 2002

Text too small?

Westpac Banking Corporation boss David Morgan's amiable grin is his trademark. It seemed a little broader than normal this week as he unveiled the $A900 million ($1.05 billion) buy of BT Financial Group.

That's probably because the buy was a second-time-lucky job.

Westpac pursued BT - which then, admittedly, was more of a local legend than it is today - in 1999, but dropped out when the bidding became too hot.

The owner, Deutsche Bank, eventually sold BT to US insurance group Principal for $A2.1 billion. Although it isn't known what Westpac's top dollar was, Morgan has certainly saved his shareholders a heap of money by watching and waiting.

Australian investors and media have given the deal a lukewarm reception nonetheless. Their criticism centres on BT's fallen status, in Australia, as a funds management star.

BT Australia is reportedly losing money and faces hefty outflows of client money from its poorly performing funds. Hence the criticism Westpac is still paying too much in a deal that gets it distribution rather than investment performance.

Westpac seems to have recognised that. It has emphasised that in Australia it isn't buying BT's funds management team.

Over here the situation is very different. BTNZ, while not a "star," is a respectable second-quartile funds management performer.

Westpac is keeping on the entire team under the current BTNZ chief executive, Craig Stobo.

The deal will be a blow to ING, the former Armstrong Jones, which took on Westpac Investment Management's lamentably-performing funds only a year or so ago.

ING's outsourcing contract runs until early 2004, at which time BT will get the $1.82 billion WIM currently has under management.

The move shifts Westpac from fifth to third spot in the retail funds-under-management table, and from ninth to sixth in the overall league, with $3.6 billion.

That still hardly makes it a giant. With around $10.3 billion AMP dominates the local industry.

ING, together with the ANZ Bank funds it manages under contract, is in second place with $5.7 billion.

At third place with $4.3 billion is Royal & SunAlliance, the joker in the pack. The management contract for RSA's funds in Australia and New Zealand is out to tender and the outcome will considerably change the landscape in brute size terms.


The game might be a little different on opposite sides of the Tasman but the BT buy is a significant move in a far larger strategic game being played out for dominance of the financial services industry.

The banks are pushing hard into funds management, to the detriment of non-bank players. The attractions are high margins relative to their traditional activities, and the opportunity to cross-sell a complete range of financial services products.

The buzz words are "wealth management," a phrase that might be expected to glaze the eyes of anybody too stretched paying the mortgage to invest in a diversified global stock and bond portfolio.

But banks define wealth differently to sharebrokers.

A WestpacTrust breakdown of last year's "wealth products" industry profit pool estimates the market is worth $2.42 billion.

Of this, the biggest component is commercial banking at $868 million.

Business banking accounts for $657 million. Retail - home loans, cheque and savings accounts, credit cards, term deposits, etc - takes $626 million. Last and least is insurance and investment, with $274 million.

Another interesting WestpacTrust chart forecasts a steady erosion of non-bank players' share of the retail funds-under-management market.

The forecast is out to 2007 and it's a bit of a mystery how WPT's crystal ball can see that far.

Nonetheless, the BT buy elicited an almost panicky reaction from Tower, which said it intensified competition and raised questions about its own future. It's worth noting Tower's funds management performance has been exemplary.

Tower is probably right to be scared. Even though the BT buy was dictated by WestpacTrust's Sydney bosses, the local team has been going full steam lately and it's well pleased with the BT acquisition.

Both WestpacTrust and ANZ Bank New Zealand recently set new, aggressive strategic courses.

They are addressing poor retail customer satisfaction ratings, pushing business banking down into the small to medium-sized enterprise market, and building up their investment banking and corporate advisory arms.

WestpacTrust has the biggest retail market share at 24% and the second biggest business lending share, just behind BNZ at 22%.

But in both markets it is, for some reason, far stronger in the South Island than the North.


The BT buy fits in with what it sees as its three biggest opportunities - cranking up "sales effectiveness and productivity," building market share, in Auckland in particular, and "building an Australasian operating model with a local feel."

Owning BT will allow it to cross-sell all sorts of stuff. Banking products, for instance, can be marketed to BT's 30,000 customers and through its 1500 independent financial advisors.

Conversely the bank's mobile lenders and business bankers will be able to offer BT funds and "wrap" accounts (akin to master trusts but more cost-effective) and corporate superannuation products.

What remains unclear is who will be leading the charge. Chief executive Tom Gallagher resigned in May and his position has yet to be filled.

In the interim Mike Pratt, the former group executive for New Zealand and the Pacific, will continue to oversee the local operation from his new eyrie on executive row in Sydney.

Nobody's lobbing grenades in public, but after years of complacent laissez-faire the banks look set for a renewed struggle for market share.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Connexionz hits the road
Liquidator's fat big-city fees questioned in High Court
Embattled Tranz Rail plans rights issue
Tower sounds caution over the near future for global equities
Trustee investigates trust deed 'breach'
Air NZ changes its airpoints accounting in Enron's wake
Telecommunications companies carve out promising niches
SPARKS of sheer brilliance
Aussie firms' guarded approach gives local investors useful guide
Report Card: Growth spurt puts Vending Technology under scrutiny