Westpac (ASX:WBC) has revealed ambitious plans to get rid of and slow down IT systems, software and other generations over the next four years, with an estimated cost of about $10 billion through 2028.
The bank’s chief executive, Peter King, and chief data officer, Scott Collary, revealed the plans in a presentation published on Wednesday, which hope to combine the company’s brands into a single platform.
To sell this great project, Westpac held pre-media briefings and business briefings, which were in print and online prior to yesterday’s announcement.
But he went over it in the 2023 Annual Report saying, “In the coming years, we will continue our simplification by integrating generation to address complexity, load and service issues beyond procurement.
“This will improve service to visitors, grow our business in line with the system, offer a cost-to-revenue ratio closer to that of our peers, and eliminate legacy systems and duplication. It will lay the foundation for the Westpac of the future.
“Over the past four years, we’ve invested an average of about $2 billion a year. Including the simplification of generation, we expect a long-term annual global investment of a similar level.
The estimate rarely differs much from yesterday’s forecast, so there shouldn’t be too many court cases from analysts (but there will be: they put profits and inventory costs ahead of those issues).
The bank will deactivate 120 systems as part of its new Unite strategy, which targets the dangers and prices that have crippled the bank for 15 years since the acquisition of St George at the height of the global currency crisis.
The bank aims to complete the overhaul by 2027-2028 and says it is relying on retaining existing control equipment to oversee upgrades.
Westpac has made clear that its generation simplification will come at a significant cost, with overall capital expenditures expected to be approximately $1. 8 billion in fiscal year 2024 (ending September 30) and then approximately $2 billion consistent with the year 2025 to 2028. approximately $9. 8 billion.
Westpac believes the investment will pay off and says the Unite plan will reduce the gap between prices and revenues compared to its peers. He also expects benefits in terms of profitability and an easing of the burden of change.
In the year ending last September, Westpac’s cost-benefit ratio fell (somewhat cleverly) to just over 49 per cent, down from 55. 1 per cent a year earlier. That’s 49 cents for every dollar of earnings charge. – Anything the bank needs to reduce by reviewing generation.
This relationship also depends on earnings growth. In a smart year, when profits are developing rapidly, the ratio decreases; When it’s a slow year, it goes up, unless prices are reduced at the same time, which is a tricky thing for a company.
Westpac increased its net source of revenue (revenue) by 10% in 2022-2023 to just over $21 billion, which explains why the cost-to-income ratio has fallen.
In its interim report for December 2023, Commonwealth Bank (ASX:CBA) reported a cost-to-income ratio of 44 percent, up from 42. 4 percent in the previous year. amounting to $13. 65 billion) contributes to the slight increase.
The low ABC ratio is what Westpac intends to adapt for the long term.
The cost-to-income ratio (and, of course, the bank’s net interest margin) will be two of the metrics that will need to be paid close attention over time to see how generational restructuring evolves. But the point of knowledge will be the number of employees. Westpac has approximately 36,000 employees.
The way to make this redesign look smart will be to lay off workers over the next five years.
That’s not the reality, because the bank may have done so without spending a lot of money on new technology.
And if Westpac’s plan runs into difficulties — such as cost overruns and delays — there will be court cases filed by analysts and some primary shareholders in that regard.
Westpac’s stock fell just over 1 cent per cent after the five-year plan and charge were confirmed, a drop that was not unexpected.
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