SYDNEY, Nov 13 (Reuters) - Westpac Banking Corp
lags rivals as its dated systems is forcing it to spend, rather
than save, while profit margins are eroded by record-low
interest rates, investors said after Australia's biggest banks
issued earnings and trading updates.
A sprawling organisation, aging software and convoluted
procedures have been Westpac's main enemy, investors said,
leading to record fines due to breaches of anti-money laundering
law and market-share losses in mortgages, its main product.
That has left the 203-year old lender prioritising costly
restructuring and system upgrades over lending growth.
Westpac's cheap stock makes it attractive to investors.
Still, few are convinced of a quick price rise considering the
central bank has cut interest rates three times to aid
post-pandemic economic recovery, squeezing banks' interest
"The question the market is asking itself is: is it cheap
enough yet?" said portfolio manager Matthew Ryland at Greencape
Capital, an investor in all of Australia's "Big Four" banks.
Westpac has over A$900 billion ($650 billion) in assets and
for years was the second-largest bank by market value. Having
seen its share price fall 28% since the breaches surfaced a year
ago, it was passed last month by National Australia Bank Ltd
The bank's stock is now worth 0.89 times its book value, the
second-lowest of the Big Four, showed data from Refinitiv Eikon.
By comparison, the multiple for leader Commonwealth Bank of
Australia (CBA) is 1.7.
"Westpac had a terrible year but there's maybe some upside
relative to the other banks," said Hugh Dive, chief investment
officer at Atlas Funds Management, which also owns Westpac
At its annual earnings briefing, Westpac said it was working
to recover market share in mortgages after a cautious attitude
combined with inefficiency sent prospective borrowers elsewhere.
New management since and a cost-focused strategy scheduled
for next May has also given hope of revival, albeit gradual.
"Westpac is 12 to 18 months behind peers in terms of getting
a grip on its cost-out program," said Greencape's Ryland.
Westpac declined to comment.
UBS, which has a "buy" recommendation on Westpac stock, in a
client note said all banks have to spend on IT, compliance and
other business upgrades because of COVID-19, but Westpac's cost
challenge was bigger.
The average recommendation on Westpac stock of 14 analysts
is 2.5, where 2 is "buy", 3 is "hold" and 4 is "sell".
Their top pick is NAB at 2 followed by Australia and New
Zealand Banking Group Ltd at 2.1, Refinitiv Eikon data
CBA, widely regarded as having better cost control and IT
infrastructure, is rated 3.4, reflecting its more expensive
($1 = 1.3845 Australian dollars)
(Reporting by Paulina Duran in Sydney; Editing by Christopher