Barrenjoey upgrades Westpac, predicts bigger investment spend

afr.com:

Westpac has hit a “pivotal” moment in its turnaround that could see it correct 15 years of under-investment in its technology systems, according to analysts at Barrenjoey Capital Partners, who have upgraded the bank to “neutral” and raised their estimated valuation by more than 10 per cent to $21.

Westpac will announce its full-year result on November 6. Bloomberg

While still a discount to its price on Friday afternoon – $21.40 – Barrenjoey’s Jon Mott told clients that he hoped legal action launched by the corporate regulator against the bank for failing to respond to 229 hardship requests would push Westpac to invest more in technology.

Mr Mott pointed to a line from Westpac’s audit report this year, included in the Australian Securities and Investments Commission’s statement, that said it did “not have a consolidated system view of customers for collections and hardship, and [made] inadequate progress in business… simplification”.

“We believe this was a pivotal moment for the group,” he said. “Internally, these proceedings from ASIC were viewed as very disappointing following three years of substantial investment in risk and compliance.

“It suggests an acknowledgement that investments around multi-brand, multiple core banking systems and customer master files are business critical and can no longer be delayed.”

Mr Mott said the bank had delayed much-needed investment since it bought St George in 2008, failing to merge the core banking systems and integrate systems because the initial cost was deemed too high. Now, “the costs and risks of maintaining multiple systems has come back to bite [Westpac]“.

He argued that it had also driven Westpac’s declines in customer satisfaction and market share. The uptick in investment