GAIL Kelly has ridden the global financial crisis better than most but now faces an investor base sceptical about whether there is another leg to her growth strategy.
This explains the 4.2 per cent decline in the Westpac share price yesterday, based on a perception that all the good news is in the books already, resulting in most analysts shaving full-year profit targets.
Kelly is a victim of her own success and a cycle that doesn't naturally favour Westpac as much as some of its peers, given the 9 per cent swing forecast in business lending to a positive 6 per cent jump next year.
ANZ would tend to be the biggest beneficiary of this swing, and its boss Mike Smith has already trumpeted a bucket-load of big business loans ready to fly out the door.
At the outset there was some nonsense being pedalled -- that Westpac's 30 per cent jump in half-year profit qualifies the big banks for a super-profit tax just like the miners.
The government might have plans for the banks, but a so-called super-profit tax isn't one of them.
Sadly, the government only has itself to blame because of the incompetent way it sold the sound rationale behind a resources rent tax.
It is based on the supercycle in the resources sector, and is aimed at sharing the benefits with the companies concerned -- and the rest of the economy.
Big bank profits are due in part to the fact the government has presided over a big shift in market share to the big four banks, and the two Sydney banks in particular.
This was aided by the financial crisis, which has seen the big get bigger.
Somehow, instead of sticking with the script and calling it a resources rent tax -- which is a valid concept and highly supportable -- the government decided to call it a super-profit tax and made out that the big miners were tax dodgers.
That's spin doctoring gone badly wrong.
As an aside while on this bandwagon: Westpac's BT investment platform attracts $1 in every $4 invested on platforms, according to Kelly.
The Axa wealth.net platform, which the ACCC (but no one else) thinks is revolutionary, is designed as an open access platform.
So how can the ACCC use platforms as the reason for blocking NAB's bid for Axa?
The bigger than expected fall in Westpac's bad debts has meant these must be taken out of full-year earnings forecasts, and the slowdown in net interest income seems to indicate retail banking is running out of steam.
Kelly noted that when you exclude the impact of Treasury and markets, customer-related net interest income actually grew by a respectable 3.5 per cent in each of the past two halves -- but margins are falling.
This is where Kelly is trumpeting productivity gains on top of established community banking stars such as BankSA's Rob Chapman.
Chapman's football team, the Adelaide Crows, may be in the basement but the South Australian economy has performed relatively well.
And when you control 25 per cent of the state's deposits and write 17 per cent of home loans, life looks good in banking.
Chapman is the poster boy for Kelly's multi-brand strategy because his team's South Australian roots mean people are happy to bank with it -- maybe without even realising they are filling Westpac's coffers.
Kelly also uses the different brands to test new technology, so BankSA was the mortgage platform used when St George combined home loans on the same back office systems.
Peter Hanlon is going through the same process now, trying to rationalise back office systems within Westpac, so customers can choose the products they want.
From a back office perspective, the bank has choices on the one system.
That way the bank can pitch business across different retail choices.
Telstra is going through the same process, trying to offer a range of choices but integrating them all from its side of the fence, so when customers change all the different threads can be brought together.
CBA is the market leader in such systems in banking.
Kelly has extended the duration of her long-term funding from four years to five, which is prudent but costly, and another headwind along with continued regulatory uncertainty.
Westpac's return on equity of 17 per cent in the wake of a financial crisis was nothing short of stunning, but the tough part is maintaining the momentum.
High hopes
THE bourse returned to fundamentals for at least a day yesterday, with Rio Tinto bouncing 5 per cent from its intra-day lows to $68.13 a share and BHP Billiton jumping 3.2 per cent to $38.74.
The falls are being blamed on Rudd government proposals for a resources rent tax, but this won't see the light of day before the next calendar year at the earliest.
In the meantime, BHP's profit for the 2011 financial year should bounce about 77 per cent to around the $9.2 billion level on the back of massive iron ore price increases.
The accompanying table shows the relative performance of Rio and BHP against the big four banks. Each time the resource giants have hit new lows, they have bounced big time.
Yesterday might be the start of a longer rally.
After all, the banks, particularly those with a retail focus, are facing the same headwinds that retailers like Woolies have encountered.
Woolies' Mike Luscombe described the government stimulus package last year as driving the equivalent of two years' worth of growth in a single year.
Yesterday, Westpac's Gail Kelly talked of a virtually unprecedented 200-basis-point increase in home loans, from 25 to 27 per cent, due to her excellent execution in grabbing market share while her Melbourne-based comrades were asleep at the wheel.
Back to the main point: the banks have had a strong run into the earnings season over the past three months, with Westpac's total return at 18.2 per cent against ANZ at 16.8, down to NAB at 8.5 per cent and the market at 4.5 per cent.
Just maybe share price momentum will coincide with bank revenue momentum, which has slowed. At the same time, the market may remember actual iron ore prices as opposed to proposed tax changes.
