Westpac's BT list bids to keep key staff

It is the same price Westpac paid for the entire BT Financial Group business five years ago.

The unit represents less than one per cent of Westpac's earnings and 10 per cent of the BT Financial Group overall.

"We've built a leading wealth business in BT and over the past five years it has become a growth engine for Westpac," the bank's chief executive David Morgan said.

"Today's announcement is an important step in maintaining our strong position in funds management and this innovative solution will ensure that BT can continue to provide strong returns across its funds."

In 2006 cash earnings from the entire unit rose by 10 per cent to $339 million, and Mr Morgan described it as a profitable growth engine.

However, for 2007, total unit earnings are forecast to be more in the order of $400 million, giving investment management earnings of around $40 million.

Based on other investment bank multiples recently in the market of about 19 to 21 times earnings, analysts are expecting the spin-off to give the investment management business an enterprise value of between $800 million and $900 million.

BT Investment Management is Australia's seventh largest fund manager, with $40 billion of assets under management.

But Westpac's key motivation is not to make money in the spin-off.

"It is really designed to crystallise the importance of that business and the high level of human capital that is involved in that business and needing to reward them by publicly listing," Fat Prophets analyst Greg Canavan said.

Mr Canavan said the move had been sparked by a number of well-known investment banking figures who have left larger institutions in the past few years to set up their own businesses and reap more of the profits of successful money-making.

"It's more trying to recognise that a lot of key staff have left banks in the last few years to create their own businesses," he said.

"It's quite a revolutionary move for a banking organisation to do this."

One notable example of this was Platinum Asset Management, which was founded in 1994 by key staff from Bankers Trust, now part of Westpac.

It made a sterling debut on the Australian share market in May, adding more than $2 billion to its value in its first day of trading and making its founder and manager Kerr Neilson an instant billionaire.

Management and key staff in BT Investment Management are expected to be offered shares in the spin-off, but Westpac will retain a majority, controlling stake.

The partial initial public offer (IPO) will have shares offered to Westpac shareholders and institutions, but with no general public offer.

The IPO is expected towards the end of the calendar year or early in 2008.

"We have a long and proud investment tradition and consider funds management a critical aspect of our wealth management offering," BT Financial Group chief executive Rob Coombe said.

"But you can't stand still in this rapidly evolving market, and this new ownership structure for funds management will put us in a strong position to ensure we can continue meeting client needs well into the future."

The final price for the shares will be determined through a bookbuild process, with Caliburn advising Westpac on the transaction.