Inflation, higher interest rates and consumers’ soon-to-be-expected greater reliance on their savings – a symptom of higher living costs – have diminished wealth platforms and left Westpac staring at a cheaper price for Panorama, the people familiar said.
CFS, backed by US private equity giant KKR, began exclusive talks with Westpac in May and a deal was first expected within weeks, Street Talk reported at the time.
Morgan Stanley was an adviser to Westpac on a sale, while JPMorgan nabbed the mandate to work with Colonial First State.
Drawn-out sales process
Westpac kick-started a sales process at the end of February, Jason Yetton, a senior executive at the bank in charge of divestments, told the Financial Review in December 2021.
Other potential suitors such as financial services peers AMP and Netwealth were also interested in buying Panorama, but baulked at what they deemed too high a price, the people familiar said.
Last August, AMP CEO Alexis George effectively poured cold water on the firm buying Panorama, when she said AMP’s own wealth product, North, was not in need of the technological enhancements. Ms George instead chose to invest in a larger sales force for North.
Adding further credence to a smaller asking price is the performance of rival firms.
Hub24’s market capitalisation has shrunk 18 per cent to $2 billion in the past 12 months, while Netwealth’s market cap has fallen 20 per cent to $3 billion over the same time period.
To be sure, over a five-year period Hub24’s value has more than doubled and Netwealth’s value has jumped 97 per cent as they reeled in customers after the Hayne Royal Commission led three of the big four Australian banks to exit the space.
Focusing on core businesses
For Westpac, it has consolidated or sold assets like its BT Personal and Corporate Super Funds, its auto-loan portfolios and its Advance Asset Management boutique funds business in recent years to trim expenses.
“Westpac has signalled that it wants to exit this market,” said Steve Prendeville, founder and director of consultancy Forte Asset Solutions, adding that the bank’s main motivation for a sale was to generate a return for its shareholders.
“It is peripheral to [Westpac]. But the size and capitalisation is significant, so until they get the right terms they won’t sell.”
The bank wants to focus on core businesses such as retail banking and mortgage lending, said John Storey, the head of bank research at UBS.
“Westpac is improving its capital allocation and sticking to products where they have economies of scale. They have a strong share in owner-occupied mortgages, and they have made some gains around business banking,” Mr Storey said.
Despite the strategy, Westpac revised its estimated costs to rise to $8.6 billion from $8 billion for the 2024 financial year, because of higher-than-expected inflationary pressures and persistent regulatory and compliance costs.
UBS is also sceptical that Westpac will record the $8.6 billion costs target by the financial year 2024.
In a November note, UBS analysts said Westpac’s cost target was “ambitious.” UBS estimated it would be $9.2 billion, without accounting for the costs at its specialist businesses division, where Panorama lives.
Broader dip in the sector
Despite the importance of selling the wealth asset, however, valuation remains the sticking point.
Buyers are less willing to fork out money for assets like Panorama that have slumped alongside the broader dip in the sector.
To Panorama’s credit, BT ranked No. 1 in the financial platforms business with a commanding 17.2 per cent market share, the Investment Trends Platform Competitive Analysis and Benchmarking report said.
Funds under administration – the total funds that Panorama services – has reached more than $100 billion, from roughly $96 billion as of last June 30, the spokeswoman said. Panorama also has almost 251,000 active accounts and more than 6,100 active advisers using the platform.
Westpac, realising these figures and cognisant of the millions of dollars it poured into Panorama, does not want to take a significant loss on its investment in the business.
“There is a likelihood Westpac could get multiple buyers interested in the asset. But the tough part will be recovering the original capital that was invested,” Mr Prendeville said.