Westpac's Restructuring Gambit: Can Cost Cuts and Tech Overhaul Rekindle Growth?

The banking sector is in the midst of a seismic shift, with institutions racing to modernize while slashing costs to survive in an era of digital dominance. Westpac Banking Corp (ASX: WBC) has staked its reputation on a bold restructuring plan—cutting over 1,500 jobs and accelerating its UNITE program—to claw back profitability. But is this a shrewd move to rebuild margins, or a risky gamble that could backfire? Let’s dissect the numbers.

The Anatomy of Westpac’s Cost-Cutting Blitz
Westpac’s workforce reduction targets 5% of its global staff—approximately 1,700 roles—primarily in non-client-facing divisions like administrative support and legacy tech systems. This aligns with the UNITE program’s mission to slash operational complexity by unifying 180 core platforms into fewer than 60 by 2028. The goal? Reduce long-term costs by 10-15% while freeing capital for high-margin segments like business lending.
The program’s tech overhaul is central to its success. By replacing fragmented legacy systems with a unified cloud-based infrastructure, Westpac aims to automate manual processes and eliminate redundancies. For instance, consolidating 11 customer onboarding systems into one platform alone could save millions annually. CEO Anthony Miller has framed this as a “necessary reset” to counter declining profits—a 1% drop in NPAT to $3.45 billion in 1H FY25—and margin pressures exacerbated by hedging losses.
How Does This Compare to Peers?
Commonwealth Bank’s (CBA) recent layoffs of 163 roles, including 58 at Bankwest, signal a sector-wide pivot toward digitization. Both banks are shuttering branches and ATMs, with Westpac having halved its Australian branches to 8,836 since 2017. Yet Westpac’s restructuring is more aggressive, targeting deeper cost cuts while maintaining investments in customer-facing roles (e.g., hiring 180 home finance managers).
The question is: Can Westpac’s strategy outpace CBA’s incremental cuts to gain a competitive edge? The answer hinges on execution.
Valuation: A Mixed Picture of Opportunity and Risk
Westpac trades at a 15.99x FY26E P/E, a 6-26% premium to peers like ANZ (13.32x) but significantly below CBA’s 20.52x multiple. Its P/B ratio of 1.5x places it mid-pack among Big Four banks, but its EV/EBITDA ratio is non-calculable due to negative TTM EBITDA—a red flag signaling near-term financial strain.
While the UNITE program’s upfront costs (30% of its $2B annual tech budget) will weigh on short-term earnings, the long-term payoff could be transformative. Analysts at UBS estimate the program could unlock $500M in annual savings by FY28, boosting net interest margins to 2.0%.
Risks vs. Rewards: When Does the Pain Turn to Gain?
Near-Term Risks:
1. Execution Delays: The UNITE program’s modular tech rollout requires flawless coordination across 85 initiatives. A misstep could inflate costs further.
2. Job Cut Uncertainties: Westpac has not confirmed the final job count, leaving employees and investors in limbo.
3. Economic Headwinds: A potential RBA rate cut to 3.85% offers some relief, but weak consumer spending could prolong margin pressures.
Long-Term Rewards:
1. Efficiency Gains: A simpler tech stack could slash operational costs, improving the cost-to-income ratio.
2. Margin Expansion: Redirected capital into high-margin segments like business lending (which saw 5% loan growth) could lift returns.
3. Dividend Sustainability: A CET1 ratio of 12.2% provides a buffer to maintain the 4.68% dividend yield.
The Data-Driven Thesis
Westpac’s restructuring is a high-stakes bet. While its P/E premium reflects investor optimism about margin recovery, the negative EV/EBITDA and execution risks demand caution. However, the 10-15% cost savings and strategic reallocation to growth areas position it to outperform peers in a digitized banking landscape.
Recommendation: Hold with a bias to Buy. Wait for Q3 FY25 updates on UNITE milestones and cost savings realization. If the program stays on track, Westpac’s valuation multiples could compress toward its 3-year average (P/E 13.39x), unlocking 15-20% upside. But investors must brace for volatility until the restructuring’s impact becomes clear.
In a sector where only the leanest survive, Westpac’s gamble could pay off—if it can execute flawlessly.
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