But in recent days, other leading bank analysts have upgraded their recommendations on Westpac to "outperform", pointing to potential for Mr Hartzer to close branches and announce other initiatives to boost productivity and to slice costs in order to sustain dividends. Credit Suisse upgraded Westpac to outperform on Thursday, saying the bank was now its top pick among the majors (where previously it was ranked four) due to the potential for "productivity-based restructuring". "Notwithstanding capital raising risk, we see a sector-leading productivity story unfolding," said Credit Suisse analyst Jarrod Martin. Similarly, Macquarie upgraded Westpac to outperform on Monday, pointing to the potential for an earnings uplift from branch closures in response to a dramatic decrease in bank branch transactions across the sector, a function of more customers using online and mobile channels. Westpac has 1276 branches around the country, compared to CBA's 1026, ANZ's 851 and National Australia Bank's 783. Westpac's numbers are higher because it runs a multi-brand strategy that includes St George, Bank of Melbourne, BankSA and RAMS. When Westpac bought St George at the end of 2008, then Treasurer Wayne Swan placed a condition on the deal that the existing number of Westpac and St George branches and ATMs be maintained. But the conditions lapsed three years later. Nevertheless, Westpac's branch numbers have been rising gradually each year since 2010, while its competitor's branch numbers have been flat or slightly declining. Macquarie said Westpac could lift its earnings by 2 per cent if it closed 9 per cent of branches, rising to an 8 per cent earnings increase if 37 per cent of its branches were closed. (The range was produced after a scenario analysis that reviewed demand for branch services by postcode and examined where Westpac and other branch brands overlapped in various geographies.) "We suspect there will be elements of the update pointing towards a de-emphasis on the sub-brand strategy, which in our view has already begun, with the previously announced reporting changes consolidating the sub-brands into the Westpac brand," said Macquarie analyst Brendan Carrig. In June, Mr Hartzer announced a management restructure that saw former St George chief George Frazis promoted to the key job of running a new consumer banking division under which all the brands have been consolidated. The new organisational structure makes determining the performance of sub-brands more opaque and could potentially hide underperformance, analysts have suggested privately. Despite the pressure to highlight productivity savings, analysts are not expecting Mr Hartzer to swing the axe on Monday with any lock-step reduction in branch or staff numbers. "The days of mass branch closures and restructures – the 1990s – are not here again," Mr Williams said. However, across the sector Mr Martin said branches were "a meaningful source of medium-term productivity savings", with a 30 per cent reduction in branch cost bases equating to a 4 per cent to 6 per cent increase in net profit after tax. "It is time for banks to intensify their productivity efforts," he said. The market will also be watching the Westpac update for an explanation of the slowdown in revenue in its core Australian retail and business banking units, Mr Williams said. In the retail bank, revenue growth is more reliant on investor mortgages than peers, but investor lending growth has been capped by the prudential regulator. Westpac will report its full-year profit on November 2. James Eyers writes on banking, fintech and technology. Based in our Sydney newsroom, James is a former Legal Affairs and Capital editor for the Financial Review
Westpac is reportedly being urged to come up with a strategy to cut costs and reduce its number of branches, which was inflated following the acquisition of St George in May; this follows disappointing 1H2015 results in 2008, which missed expectations.