Australia: Westpac whirlwind sweeps up St George
What sort of bank will Westpac and St George be?
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"To have customers who are delighted by their bank – that’s a huge challenge. And I’m up for that challenge"
Gail Kelly, Westpac |
AS GRAND ENTRANCES go, Gail Kelly’s start at Westpac takes some beating. She began work as chief executive of the bank, one of the Big Four that dominate Australia’s financial landscape, in February. Just three months later, she struck a transformational $18 billion deal to acquire another bank – and not just any bank, but the one she’d recently left – St George Bank. The merger will create the largest bank by market capitalization in the Southern Hemisphere.
Clearly, Kelly likes to hit the ground running. But there are several other things that make it interesting and unusual to find her in the chief executive’s corner office at Westpac’s inspirational new HQ on Sydney’s Kent Street, overlooking the old Darling Harbour wharves. Most obviously, there’s the fact that she’s the only female chief executive of an Australian blue-chip company, arguably the only really important female corporate executive in the country since the departure of long-standing Qantas chair Margaret Jackson. One assumes she’s also the only mother of triplets (she has four children in total) to be a big bank chief executive anywhere in the world.
Then there’s the fact that, despite 11 years working in Australia, her accent today is not from Sydney but South African. She was born in Pretoria in 1956, only arriving in Australia to take up a position with Commonwealth Bank in 1997. Her banking career began not with an Aussie Big Four bank but with South Africa’s Nedcor Bank; she did not become an Australian citizen until September 2001.
This mercurial rise in a foreign country has been characterized by a deep belief in the power of a brand. (It’s fitting that Kelly’s first job in Australia, at Commonwealth Bank, was as general manager of strategic marketing, and she left that bank as head of the customer service division.) Kelly does not talk numbers much, or ratios, or big business: it’s about people, customers, advocacy and brands, and on this vision her Westpac tenure will stand or fall. Indeed, one could argue that Kelly is in some measure a brand herself, and there has rarely been a merger of such importance that has seemed so crucially connected to one individual.
To understand why Westpac appointed her to replace David Morgan, it’s instructive to look at what she did to St George during her time there. When she became chief executive and managing director in 2002, St George was not in trouble or badly run but it was a little-remarked second-tier player. It was considered a takeover target for one of the Big Four, with substantial shareholder National Australia Bank seen as the most likely candidate when she arrived.
Instead, St George grew substantially on every measure under Kelly’s tenure: assets, profitability, market valuation and prestige. Assets more than doubled, to more than A$100 billion ($84 billion), between her arrival and departure, and profits more than doubled too, to more than A$1 billion, with return on equity climbing from 16.6% to 23.2% at a time when the cost to income ratio declined. St George boasted double-digit earnings per share growth in every year under Kelly’s watch. Business banking and wealth management enjoyed especial improvement.
In particular, Kelly worked hard to position St George as a community-based bank – its roots were as a building society – with customer satisfaction levels higher than its bigger peers. Research group Roy Morgan put customer satisfaction at more than 80% by the time of her departure. But, while appearing local, it also became a viable national alternative to the big guys, capitalizing on the increasingly noxious individual sentiment towards the Big Four and suggesting that a more personal and reliable experience was available. A popular advert during Kelly’s time depicts someone at a barbecue being asked what he does for a living. When he says he’s a banker, there’s a horrible silence and everything stops. When he says the bank is St George, everyone is relieved and carries on socializing again.
Back in play
So when Westpac decided on Kelly last August, she had made St George more or less impregnable to a takeover. The irony is that, by the time she turned up for work at Westpac six months later, the global credit market had changed so dramatically that it was back in play – by now to her benefit.
It’s unlikely that, back in August, with the Australian stock markets still enjoying a multi-year bull run and the banks in their best ever condition, Westpac’s board settled on Kelly in the hope or belief that she could effect the takeover. Instead, they probably hoped for two things.
One was to continue the excellent work done at Westpac by David Morgan, a 17-year veteran of the bank who spent nine of them as chief executive. It is hard now to recall what a mess Westpac used to be in: the A$1.6 billion loss it logged in 1992 was at the time the worst ever recorded by any Australian corporation, and it required widespread redundancies and a dip into company superannuation (pensions) to keep the place viable. The acrimony of the AGMs around that time remain the stuff of legend.
Morgan brought to the top job a certain Friends-Romans-Countrymen bombast – he was a master of the rhetorical flourish at press conferences – but in fact he was broadly conservative in his approach, and the fact that Westpac has come out of the sub-prime crisis and the credit crunch in better shape than any other big Australian bank so far is to Morgan’s credit. Impaired assets amounted to just 0.25% of total committed exposure in the third quarter and that result disclosed no new troubled assets, unlike any of the other three big banks.