Westpac CEO Brian Hartzer defends bank’s wealth unit BT

The Australian 12:00am May 9, 2017

Glenda Korporaal

Westpac chief executive Brian Hartzer has signalled he will strongly resist pressure to spin off the bank’s wealth management arm, BT, in any government- backed review of the industry.

“Customers need more financial advice, they need more insurance,” Mr Hartzer said as the Turnbull government announced plans for a Productivity Commission review of competition in the financial system.

“We think the banks are well placed to provide this in a sustainable way, free of conflict and abuse and our customers can get a lot of benefit from it.”

But Financial Systems Inquiry chairman David Murray has backed a Macquarie Group-style structure where banks have their banking and wealth management arms separated under a common holding company.

Mr Murray, a former chief executive of the Commonwealth Bank, told The Australian he felt the holding company structure, where banking and wealth management was separated into two different subsidiaries, could be better.

Mr Murray, who led CBA’s move into wealth management in 2000 when it took over Colonial First State, said banks should be allowed to offer wealth management products such as superannuation and life insurance to their customers.

But he said a move to a US-style holding company, which Macquarie Bank did in 2007, could be a “better operating structure”, clearly separating the two arms. He said he had recommended the idea that banks move to a holding company structure to the Wallis inquiry into the financial system in 1997.

The question of banks’ interest in wealth management is set to come under official review after Scott Morrison yesterday announced the Productivity Commission would be looking into competition in the financial system including “the degree of vertical and horizontal integration” of the industry.

The reference is widely seen as paving the way for a review of the banks’ role in the wealth management business including reviewing whether they should be separated into different businesses. The review will also examine competition among deposit accounts and mortgages as well as finance to small and medium businesses.

“Competition is central to the government’s plans to support innovation and economic growth, and deliver better outcomes for consumers and small businesses,” the Treasurer said yesterday.

The move is widely seen as undercutting the political ground from Labor’s proposed royal commission into the banking industry with many of the mooted terms of reference in Labor’s commission now included in Mr Morrison’s reference to the Productivity Commission.

Mr Hartzer said he was “happy to work through” any review into the financial system including the latest reference to the Productivity Commission.

His comments came as Westpac unveiled a 3 per cent increase in interim cash earnings to $4.02 billion. Westpac, Australia’s second-largest lender, said it was not concerned about stresses in the overall housing market but ­expected property price growth to moderate over the year.

Mr Hartzer said he was “very happy with our position in wealth management”.

He said the actions being taken by BT, which delivered nearly $400m in interim earnings, would “strengthen” the bank, allowing Westpac to distinguish itself more sharply compared with some other banks which were cutting back their exposure to wealth management.

While some such as ANZ and the National Australia Bank have been cutting back their exposure to wealth management, Westpac executives yesterday signalled they saw wealth management as an integral part of the bank’s ­operations.

A CBA spokeswoman said that the bank supported the proposed Productivity Commission inquiry into competition in the financial sector.

Australian Bankers’ Association chief executive Anna Bligh also welcomed the government’s move yesterday.

“Banks want an industry that is as competitive as possible, so customers get the best deals,” Ms Bligh said.

“Financial products and services help customers with some of the biggest decisions in life. The more choice customers have, the more likely they are to find products that are right for them.”

Ms Bligh said the inquiry would provide Australia with a “thorough, robust and credible assessment of the financial system” which would examine “all parts of the financial services industry”.

Mr Hartzer said the banks already operated in a very competitive market in Australia where they faced competition from their traditional large competitors, regional banks and a range of smaller competitors in financial services.

Mr Hartzer said Westpac saw BT as an integral part of its ­business with its role strengthened as other competitor banks cut back their wealth management business.

National Australia Bank sold off an 80 per cent stake in its MLC life insurance business to Japan’s Nippon Life in a $2.4bn transaction finalised last year, which freed up capital for NAB’s banking business.

ANZ has taken a step further, announcing plans to sell off its wealth management business. It is considering a range of offers for the business.