MENU

How Westpac Banking Corp makes most of its money

Credit: perry carbonell

Australia’s second largest bank, Westpac Banking Corp (ASX: WBC), is widely owned by the regular public both in their brokerage accounts, their super funds, and Self-Managed Super Funds (SMSFs). Shareholders love Westpac’s business strength and its dividends, which have come to be seen as highly reliable in the decade since the Global Financial Crisis.

Here’s a look at how the company makes its billions:

source: Company reports and Excel

Like with Commonwealth Bank of Australia (ASX: CBA) as we saw here, Westpac’s income is heavily weighted to retail banking, with 38% of the total group’s cash earnings after tax coming from retail banking. This figure swells to 48% if you include the New Zealand businesses (WBNZ).

Although I’m using a different metric here compared to the Commbank article, Westpac still relies less heavily on retail banking than its competitor does. This is partly due to Westpac’s stake in BT Financial Group (BTFG), one of Australia’s largest superannuation fund managers and life insurance providers, and its larger focus on business banking.

As with the other major banks, Westpac is benefiting from a growing ability to sell its products online, and cross-sell to customers. Retiring or consolidating IT applications is effectively reducing maintenance costs and lifting efficiency. Westpac also has a new branch format that it is rolling out, with 45% of its branches using the new format already.

source: Company report

Westpac has also taken significant stakes in many up-and-coming ‘fintech’ businesses like PromisePay that are hoping to revolutionise and disrupt the way the Australian financial services industry operates – i.e., Westpac has been investing in its possible competitors. I wrote in an article last year that while there is plenty of room to disrupt the banks, these mega-corporations well and truly have the firepower and scale to fend off competitors – even if by the simple expedient of buying them out. Sticky customers don’t want the hassle of migrating all their accounts over to another bank, so I would be more concerned if another bank made it really easy and efficient to switch.

Whatever happens, Westpac will continue to rely heavily on retail and business banking activity for the foreseeable future.

3 stocks our analysts think you should buy before Westpac Bank

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.