Westpac’s Peter King acknowledges potential cost overruns for tech project

Westpac boss Peter King admits possible cost overruns are on the table for the bank’s multibillion-dollar tech overhaul, saying it could take more than the four years budgeted.

’If we can change, we could go up (in annual expenditure), if we can’t accelerate change capacity, then it will go out longer (in time),’ Westpac CEO Peter King said. Picture: NCA NewsWire/Tertius Pickard

Westpac chief executive Peter King acknowledged potential cost overruns are on the table for the bank’s multibillion-dollar tech overhaul, saying it could take more than the four years budgeted but drawing a line at upping its $2bn annual budget.

“$2bn is a lot of money every year,” Mr King told analysts at a briefing on Wednesday.

“Unite is around 30 per cent of the forward estimates … but what goes with that is the ability to execute,” he said.

“Unite” is Australia’s oldest bank’s attempt at updating and simplifying its technology, reducing a complicated and redundant set of processes and systems by a third including cutting three separate customer master files to one.

On Wednesday, Mr King said the budgeted plans do not currently include integrating or digitising its two separate “core” transaction processing and deposit systems for the retail banking business, its largest.

The two core systems – one for Westpac and another for St George – are still, and will continue to be, operated separately for years – well over a decade after Westpac acquired the St George business.

“We don’t think we’re ready at this point to make a call on where to go,” Mr King said. “We want to go to fourth generation. It’s not a call we can make today. But it’s a call we think we can make in the next couple of years.”

An example of a “fourth generation” core system is the digital and cloud-based liquidity management and payment processing platform it is building at its much smaller institutional unit.

Analysts showed scepticism about Westpac’s budgeted plans and said the integration of its customer data files would be one of the most complex tasks.

“If you look at IT programs over time, I can’t think of one bank that’s ever delivered on time and on budget anywhere in the world,” Barrenjoey banking analyst Jonathan Mott said. “It’s just what happens.”

Asked how the bank would manage a potential budget blow up, either by upping expenditure or by extending the end of 2027 deadline of the project, Mr King said it would depend “on the capacity of the organisation to absorb change”.

“If we can change, we could go up (in annual expenditure), if we can’t accelerate change capacity, then it will go out longer (in time),” he said.

“There’s a cap on how much change you can put through in any particular year. I don’t think it’s going to be one or the other. I think it’s probably a combination.”

Analysts also pressed Mr King on how his mooted exit would affect the costly IT restructure and who would “own” the project and be held responsible to deliver it.

The Australian reported earlier this month Westpac chairman Steven Gregg flagged in discussions with some analysts and investors that the board was actively looking to replace Mr King by the end of the year.

Mr King this week dismissed the reports as speculation and skirted the issue at the Wednesday briefing.

However, he said the board was “committed” to the IT project and said the business heads – some of whom are seen as internal candidates to replace him – shared accountability for it.

“We often focus on the top of the company, but this has to be managed as 85 programs sequenced and delivered,” Mr King said, adding that each of them had a “business owner” depending on its function.

“It’s board-down. The board knows and is committed to doing this,” Mr King said. “So it’s a priority for me as CEO, it’s a priority for the board and the team … and to me it’s necessary.”

Group executives for each business unit reporting to Mr King are overseeing the divisional impacts of the project and share some responsibility, measured through financial, risk and customer outcomes, he said.

That includes the head of the business and wealth division, Anthony Miller; consumer head Jason Yetton; institutional head Nell Hutton; and customer support services head Carolyn McCann. Mr Miller and Mr Yetton are seen as internal candidates for the top job.

Chief information officer Scott Collary is overseeing the overall project, Mr King said.

Westpac says the project should help it meet, by 2028, it’s redesigned aim to have a cost to income ratio comparable to peers. That came after Westpac was forced to scrap earlier targets to meet costs at $8bn, and then $8.6bn.

But analysts on Wednesday remained sceptical.

“At its core, the Unite plan aims to tackle the longstanding duplication that has existed in the business since the St George acquisition was not properly integrated over a decade ago,” said Citi banking analyst Brendan Sproules.

“At completion, WBC aims to close the relative CTI gap to peers. However, this will likely be a combination of revenue and cost change, making it difficult for investors to evaluate over the next 4 years how management are progressing.

“To the extent that peers also want to invest further, and with an uncertain revenue outlook, this creates a moving feast.”

On Wednesday, Westpac said its total investment spend would be about $1.8bn this financial year and then $2bn annually from FY25 to FY28.

Originally published as Westpac’s Peter King acknowledges potential cost overruns for tech project