Westpac ready to steal rival's customers

By PAULA OLIVER banking writer

Westpac's local boss yesterday wished Sir John Anderson well in merging ANZ and the National Bank - but warned that her bank was ready to pinch unhappy customers.

Unveiling a solid annual profit of $462 million, Westpac chief executive Ann Sherry said that banking's competitive landscape would change after the ANZ takeover of National Bank.

Studies of any banking merger showed that there was always some customer attrition.

"We will be seeking to grow our share of the business in New Zealand off the back of that customer attrition," Sherry said.

On the surface Westpac's annual profit was down on the previous year's $614 million. But one-off costs played a big part - last year's figure was boosted by the sale of the AGC loan book, while this year an additional $178 million was transferred into a provision for bad and doubtful debts.

Without those items this year's profit would have grown by 14 per cent.

Sherry said she was pleased with the overall result. "It's a really solid result for us. We've got the momentum we said we were going to get. It gives us enough capacity to reinvest."

Strong lending growth in the housing market and strength in the economy were identified as reasons for the profit.

Westpac's expenses increased by $14 million to $699 million - a rise of 2 per cent - as it completed the move of its head office to Auckland, re-branded from WestpacTrust to Westpac, and invested in new technology and staff projects.

Sherry said it was the first time in years that expenses had risen.

"In the past we hadn't invested in some of the things we needed to. What we've been able to do this year is keep our topline growth really strong, but fund those expenses that have rolled through as well."

Customer satisfaction was also rising in internal and external surveys - but Sherry said it needed to go higher for her to be happy.

A Lloyds TSB spokeswoman last week said that one of the reasons for its sale of the National Bank was the increasingly competitive nature of New Zealand's banking sector.

Sherry said she agreed that the industry had become more competitive, even just in the second half of this year.

She said some operators were taking the dangerous route of chasing customers by competing on price - and weren't making any money.

"We've made a decision not to buy unprofitable business for the sake of looking like we're doing better. I don't think it's sustainable."

Sherry said the strategy gave a short-term hit, but the people who fixed their interest rates for one year and bought on price often looked for the next best price the next year.

"The reality is you don't make any business out of mortgages or other lending where people only stick with you for a year."

Sherry, who has headed Westpac's local arm for almost a year, is a veteran of more than one major banking merger in Australia.

Westpac looked at buying the National Bank but found the numbers didn't stack up. She said the combined entity would have had a market share in the vicinity of 50 per cent or 60 per cent in every segment of its operation. "That's a really difficult position to hang on to."

She said the National Bank team were formidable competitors, but they had a big job ahead.

"The complexity of a merger is hard to imagine from the outside. The systems are so complex, and it's incredibly difficult to migrate customers in a way that makes it seamless to them."

ANZ had committed to synergies, she said, and the team would be "working out how the hell to deliver all of that".