Westpac looking at acquisitions, but targets unclear

Westpac is considering acquisitions while searching for a new chief executive. Picture: Chris Pavlich

There is persistent speculation that Westpac is considering acquisitions that would enhance its technological capabilities.

As earlier reported, many believe it’s curious timing for deals, given that chief executive Peter King is leaving and a successor is being sought.

Anthony Miller, who runs Westpac’s business and wealth unit, is considered the strongest internal candidate, but some think an external contender could take the position.

Westpac chairman Steven Gregg is likely to make a call on the new chief executive appointment within six months, so perhaps a deal will be announced soon.

Yet it leaves many scratching their heads as to what Westpac’s target could be.

Some believe given the state of flux with its management, it is likely to be on the smaller side.

As reported when speculation surfaced that Westpac was looking at the $500m Tyro Payments, banks see gaining businesses with better technology or data as a way to win more mortgage and business customers.

A payments business like Tyro enables Westpac to grow its merchant-acquiring capabilities and offers the opportunity to collect customer data while also gaining the soft technology that sits behind the payments business.

When ANZ looked at accounting software group MYOB in 2022, the plan was that it would provide more customer opportunities through package deals and more information on the customers it had.

At the time Westpac looked at Tyro, investment bank JPMorgan was involved. Some had expected more mergers and acquisitions in the banking sector after ANZ’s $4.9bn deal to buy Suncorp was given regulatory approval.

Much of the focus has been on the regional banks, with suggestions that Bendigo Bank may be closing in on Judo Bank.

However, it is understood there are no talks between the pair.

That’s certainly the view of the market, with the number of short sellers in the past month betting that Judo’s shares will fall increasing sharply, while fewer are shorting Bendigo Bank shares and shares in the Bank of Queensland, though short seller holdings in Bank of Queensland have lifted slightly in recent days.

Westpac could be looking at deals to capitalise on the strong movement of its share price over the past year, as nervous investors pile into the top four banks, treating them as safe havens.

Analysts at Wilsons say bank stocks have rallied over the past three to four months, a move they believe was overdone.

Their view is that the stocks are expensive – above what they were trading at before the Global Financial Crisis in 2009 – and disconnected to fundamentals, given the tepid 2 per cent earnings growth expected over the next two years.

Wilsons believes that the recent rerating appears to be predicated on the market’s anticipation of upward revisions to earnings estimates over the next 12 to 24 months.

But its analysis of historical trends and current consensus estimates suggests limited upside to forward earnings, even with a soft landing and interest rate cuts in the next 12 to 18 months.