But the central plank to Kings recovery plan will a $2 billion cost-cutting exercise.
Most bank investors suffer from cost out fatigue having heard the major banks talk about big plans to take expenses out of their businesses for years. Westpacs plan, which is all about its simplicity mantra, has caught investor attention because it has been broadly quantified.
The danger in being this explicit is that failing to meet the target will be punishable. King has given himself three years to get there, but he will need to provide updates along the way.
Having said that King will be assisted by some tailwinds. The first is that a decent portion of the cost reduction will come from exiting non-core businesses. And some of the savings will be the result of cutting staff and branch numbers – over which Westpac will have control.
But King artfully dodged questions on how many (both staff and branches) they were looking to cut. Customers and unions are generally negative about staff cuts and branch closures and King clearly wants to avoid those unpleasant headlines.
(That said, they will be music to the ears of other bank bosses who are desperate to undertake a more meaningful post-COVID branch cull.)
But there are plenty of risks associated with cost-cutting – the most significant of which is destabilisation of the business and alienating customers, which can negatively affect revenue.
Another issue is that Westpac will need to spend money to save money. The spending comes first.
The third is medium-term creep – where costs are cut within the prescribed period but they build up again in ensuing years.
But these questions will not be answered soon.
The market responded positively to the release of Westpacs profit numbers, which were better than analysts were expecting with the bank experiencing an unexpectedly strong improvement in net interest margins and better fee income.
The banks share price rose about 5 per cent, shrugging off the news that the new normal in its dividend payout ratio will be 60 to 65 per cent which is well down on the pre-COVID level of 83 per cent.
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