Kelly's Razor Gang Gets Ready To Cut Costs

Sydney Morning Herald

Saturday February 2, 2008

Danny John

THE new Westpac chief executive, Gail Kelly, is expected to start shaving costs from its key retail bank operation in moves which could add an extra $100 million to net profits in the next two years.

Starting work yesterday as the first female head of one of the country's four largest banks, a smiling Mrs Kelly was reluctant to discuss her initial plans to build on the legacy left by her predecessor, David Morgan. He finished up at Westpac on Wednesday after nine years in the top post.

Saying that her first priority was to meet as many of her new staff and customers as she could, the former chief executive of smaller rival, St George Bank, looked relieved that her almost six month-long enforced break between the two jobs was over.

"I'm delighted to be here," the 51 year-old banking specialist said as she arrived shortly after 7am at Westpac's Kent Street headquarters.

Appointed last August by a Westpac board anxious to maintain its improving share in a fiercely competitive local market, Mrs Kelly is unlikely to be distracted by moves by her major rivals, ANZ, National Australia Bank and Commonwealth Bank to look overseas to fuel future growth.

Her background - and, in particular, her five years at the fifth-biggest bank during which St George targeted the majors aggressively to grab business - is likely to mean Mrs Kelly will focus on driving down Westpac's cost base while benefiting from strong revenue gains that came through in Dr Morgan's last year.

Its consumer financial division, which includes its 800-strong branch network, has the highest cost-to-income ratio of the banks at 54.6 per cent, compared with the best performers, St George and Commonwealth, at 45.2 per cent.

According to new analysis compiled by the industry research team at brokers ABN Amro, bringing Westpac into line with Mrs Kelly's old employer could result in those costs falling swiftly, even in her first year, producing savings of $29 million in 2008 and as much as $108 million by 2010. The latter amount would translate into 2 per cent of the division's annual earnings, which over the past year helped drive the bank's overall cash profits up by 12 per cent to a record $3.45 billion.

But Mrs Kelly's pressing internal need will be to find a new boss to head up the consumer financial division after Mike Pratt, the previous head appointed by Dr Morgan, quit just before Christmas. It is believed that among her first decisions yesterday was to ask headhunters Egon Zender to undertake a worldwide search for Mr Pratt's successor.

Mrs Kelly is also expected to spend her first year looking at ways to reduce costs by moving more back office work offshore and through greater use of technology.