Westpac’s “multi-brand” strategy is facing a fresh round of market criticism, with JP Morgan analysts saying the bank should consider closing up to 200 branches in a bid to cut costs.
In a note to investors, analysts led by Scott Manning said the branches acquired when Westpac bought St George in 2008 were a drag on the business, and Westpac generated a third less profit per branch than its rivals the Commonwealth Bank and ANZ.
The report also argued the bank may have to ultimately reconsider its strategy of offering customers a range of brands including St George, BankSA, Bank of Melbourne and RAMS.
It came as consequences of the Commonwealth Bank financial planning scandal continued to be felt, with Standard & Poor’s saying it was monitoring the situation but the bank’s credit rating would be unaffected.
After reviewing Westpac’s distribution footprint, the JP Morgan analysts said that despite its large branch network, Westpac had not made significant efficiency gains.
One response would be to shut down the St George brand outside NSW, resulting in the closure of about 50 branches. The bank could also shut a further 150 branches across its network in areas where there was overlap between its brands, or in locations not suited to the bank’s demographic target market, the report said.
It estimated the closures would save $400 milllion a year, but still keep the “mutli-brand” approach alive.
In the longer term, it argued the strategy of promoting a range of brands should be revisited as the bank responded to digital innovation in banking, which is prompting customers to bank online.
Analysts have previously questioned the merits of Westpac’s “multi-brand” approach – which is also used by Commonwealth Bank via its Bankwest brand and NAB through online lender UBank.
But Westpac has remained committed to the strategy, which it says allows it to reach customers who do not want to bank with a “major” lender.
A Westpac spokesman declined to comment on the report, but the bank has repeatedly stood behind the multi-brand approach.
In May, St George chief executive George Frazis argued that its “non-major” brands were playing a key role in the banks’ attempt to grow its loan book more quickly.
St George – which includes Bank of Melbourne, BankSA and RAMS – was one of the strongest performing units within Westpac’s latest half, posting 12 per cent annual growth in profit, to $772 million. Westpac also has the lowest expense-to-income ratio of the big four.
Meanwhile, Standard & Poor’s said the Commonwealth Bank’s AA credit rating would be unaffected by the customer compensation for customers of its financial planning arm.
“At this stage, we believe that it is unlikely that any potential monetary compensation for customers stemming from the program would be sufficiently large enough to affect our view of CBA’s stand-alone credit profile factors. We will, however, continue to assess ongoing developments relating to these matters,” S&P said in a statement.
It is the latest reaction to a scandal that involved fraud by a group of planners between 2006 and 2010.
So far the bank has paid out $52 million in compensation, and has not said how much more it expects to pay out.
The Commonwealth Bank has yet to reveal key details about its compensation arrangements, including who it will appoint as customer advocates and who will sit on the independent panel overseeing the scheme.