Westpac Banking Corp (WBC) has announced they are exiting the provision of personal financial advice by Westpac Group salaried financial advisers and authorised representatives.
WBC is moving to a referral model for financial advice by utilising a panel of advisers or adviser firms. As part of the exit, WBC has entered into a sale agreement with Viridian Advisory (a self-licensed national advice business) which will see many BT Financial Advice ongoing advice customers offered an opportunity to transfer to Viridian. A number of the Group's salaried financial advisers and support staff will transition to Viridian from the anticipated completion date of 30/6/2019. At this stage, the Company expects 900 full-time roles to be eliminated due to the exit; however, of this number, some support staff may be redeployed elsewhere in the Group.
EPS positive in FY20
The personal financial advice business made a cash earnings loss of $53m in FY18. The changes announced today are expected to be Earnings Per Share (EPS) positive (excluding any remediation costs) in FY20 due to exiting a high cost, loss-making business. The one-off impacts from the transaction and implementation will be spread over FY19 and FY20. The Company's initial estimates include one-off costs of between $250-300m which will be taken through cash earnings. Proceeds from the sale will depend on the size of the business that transitions to Viridian Advisory; proceeds will be included in cash earnings and will be spread across FY19 and FY20.
Realigning BT Financial Group (BTFG) businesses
The Private Wealth, Platforms & Investments, and Superannuation businesses will move into an expanded Business division, while the Insurance business will move into the Consumer division.
WBC has signaled that it is firmly committed to its Panorama platform, and believes the changes announced today send a strong signal that Panorama is fully committed to independent financial advisers. WBC has also said that it is pleased with new flows into Panorama since recent pricing changes.
Investment view and changes to forecasts
Our FY19F cash EPS is reduced by 2.8% due to the one-off costs associated with the exit. Our FY20F and FY21F cash EPS is increased by 0.1% and 0.3% respectively.
Key downside risks to our share price target include a material increase in funding costs and greater-than-expected asset quality deterioration.
WBC remains our preferred major bank. We retain our Add recommendation.
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