Westpac Banking Corp (ASX: WBC) shares are down more than 3.5% this year after a month-long selloff from mid-February to March.
Now the bank is quietly starting a major overhaul under its new CEO, Anthony Miller. The project could impact Westpac's subsidiaries, including St George and BankSA. But is it a good move for investors? Let's dive in.
Westpac focused on efficiency
The Australian Financial Review reports today that Westpac could be set to embark on its next big move, known as Project Aries.
Under the program, Westpac is said to be weighing up options for some of its subsidiaries. The move could shift large business banking customers from St George and BankSA over to Westpac.
If implemented, the restructuring is said to simplify the bank's operations and cut costs.
It has already ended St George's private banking division and moved about 2,000 wealthy clients to other divisions. The next step may see more business borrowers and parts of St George's business banking operations absorbed into Westpac.
Since acquiring St George in 2008, Westpac has struggled to integrate its subsidiaries fully. The bank has closed hundreds of branches and reduced St George's network, but it hasn't fully merged the technology systems.
For instance, it started with 400 branches back in '08 and "now has 90 across the St George, BankSA, and Bank of Melbourne brands." Over the past 17 years, that's a closure of about 18 per year.
Project Aries aims to tackle this issue head-on. It is part of a multibillion-dollar consolidation under Westpac's "Unite" program.
Under Unite, the bank will invest $2 billion per year until FY28, totalling about 30% of total expenditures per year. The company says this "will be a major driver to close the cost-to-income ratio gap to peers."
Matthew Davidson, portfolio manager at firm Martin Currie Australia, sees potential savings from rationalising brands. Speaking to The AFR:
It makes sense that an assessment of using different brands in areas such as business banking will be part of that.
With this mapped out there could be further savings from brand consolidation in certain areas that make more sense after the systems' integration.
Meanwhile, Morgan Stanley noted earlier this month that any disclosure on the Unite project was welcomed:
Given the scale and importance of Unite, we think investors would welcome new disclosure on potential cost savings or near-term financial targets, which can be used to track the progress.
What's next for Westpac's shares?
It's important to note that Westpac itself hasn't confirmed the full nature of its restructuring, and the reporting isn't price-sensitive in any way.
Despite a solid 2024, brokers aren't bullish on the banking giant. Instead, the consensus of analyst estimates rates Westpac shares a sell, according to CommSec.
Morgan Stanley also downgraded Westpac to a sell earlier this month, valuing it at $27.30 apiece.
With Westpac shares last at $31.27, this spells a sharp downside potential if the broker is correct.
Westpac shares takeaway
Westpac shares have been in the red so far in 2024, but according to reports today, the bank looks set to make a suite of changes.
Zooming out, the stock is up around 18% in the past year.
