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Westpac Banking Corporation, Australia's largest banking and financial services group, was the first bank to be established in Australia. The bank was founded in 1817 and was incorporated in 1850 as the Bank of New South Wales. In 1982, the bank merged with the Commercial Bank of Australia Limited, founded in the state of Victoria in 1866, and changed its name to Westpac Banking Corporation. Westpac's name is derived from the area which it has historically served--the western Pacific. The bank has shown tremendous growth in recent years and has become a truly international financial services group.
When Australia was settled, in the late 18th century, the colony's economy was based on a system of barter. A variety of foreign coins also circulated, but these usually found their way back overseas in exchange for the many imported goods the colony needed, so Australia had trouble keeping any form of currency in the colony. Governor Laughlan Macquarie was determined to solve his country's monetary problems. To help prevent currency from disappearing overseas, Macquarie had the center cut out of coins, creating a donut-shaped "holey dollar." The center piece, known as a "dump," was worth one quarter of a holey dollar. But currency and exchange problems continued to plague the Australian colonies.
In 1816, Governor Macquarie began to push for the establishment of a colonial bank, and a group of 46 subscribers formed a committee to organize the bank's operations. On April 8, 1817, the Bank of New South Wales opened for business in a house in Macquarie Place. Edward Smith Hall was the cashier/secretary, and Robert Campbell Junior was the head accountant. The bank's first depositor was Sergeant Jeremiah Murphy, who entrusted A50 to the £new bank.
The bank of New South Wales operated for five years under its original charter, granted by Governor Macquarie, and then for another five under a renewal issued by Governor Brisbane. In 1828, however, the British authorities declared the Bank's charter invalid, claiming that colonial governors had no authority to issue such charters. The Bank of New South Wales was then reorganized as a joint-stock company.
As trade expanded throughout the Australian colonies, the Bank of New South Wales grew. In 1847, it employed the London Joint Stock Bank as its overseas agent in London. Foreign exchange was a growing area of the bank's activities. In 1850, the bank was incorporated by an act of the New South Wales Parliament and was allowed to establish branches. The first branch opened in the Moreton Bay area of what was soon to become the colony of Queensland. A year later gold fever struck Australia, and the bank soon sent its agents directly to the mining regions. Some branches were no more than a tent; others were built with furnaces to smelt gold right on the premises. In 1853, the bank established an office to handle the colony's growing export trade.
The mid- to late-1800s saw widespread development of the country's resources. Bank branches were established at scattered points across the continent. Travel was difficult and often dangerous, as the story of Robert White, the "terror of the bushrangers" illustrates. In 1863, Robert White, an accountant at the Deniliquin branch of the Bank of New South Wales was held up. Although he put up a fight he found himself bound and gagged and the bankrobbers headed out of town with £3,000 in gold and notes. The accountant managed to free himself, however, and was soon on the bandits' trail. He successfully recovered the £3,000 and the bushrangers landed in jail. On another occasion, White was ambushed in Gympie while carrying a great deal of money. He drew his pistol and charged his adversaries, wounding two of them. After his banking career, White was elected to the New South Wales legislative assembly.
In 1866, the Commercial Bank of Australia opened in Melbourne. CBA focused on suburban and rural areas. In 1870, Henry Gyles Turner became general manager of CBA; Turner directed the bank for the next 30 years. By 1876 the bank was operating 34 offices and agencies throughout the Victoria territory. CBA expanded steadily across the rest of the continent and had offices in Sydney, Perth, Adelaide, and Brisbane by 1890.
In 1893, Australian banks faced a major crisis. Overvaluation of urban real estate and a sharp drop in wool prices precipitated a depression. Depositors panicked and scrambled to withdraw their funds. Fewer than half of the 28 conventional banks were able to continue operations without some interruption, but the Bank of New South Wales was able to. Not until after the turn of the century did the economy fully recover. At that time, both the Bank of New South Wales and the Commercial Bank of Australia branched out further. CBA soon moved to Tasmania and New Zealand; "the Wales," as the Bank of New South Wales had come to be known, ventured to Fiji, Papua New Guinea, and Samurai Island. Increased trade with the neighboring islands paralleled a general increase in foreign trade.
In 1914, World War I broke out. Many employees of both the Bank of New South Wales and the CBA enlisted in the Australian Imperial Force. Of the 1,112 men from the two banks who volunteered, 186 were killed in action. In 1918, John Russell French, general manager of the Bank of New South Wales, was knighted for his service in helping Australia finance the war effort.
Australia experienced the economic boom of the 1920s along with the rest of the world. In 1929, on the eve of the Depression, the Bank of New South Wales appointed a new general manager. Alfred Charles Davidson took the helm at a time when Australian banking was undergoing many changes. Davidson introduced a travel department, (which later became the largest in the southern hemisphere) and established the British and Foreign Department. The bank stepped up overseas operations in the early 1930s. In 1931, Alfred Davidson was instrumental in the Australian government's decision to devaluate its currency, a move that improved trade conditions for exporters. By the mid-1930s the economy was recovering from the Depression.
World War II brought about strict controls on Australian banking. Bank branches were closed to release manpower for the war effort. The Japanese invasion of the Pacific threatened some of the branches of the CBA and "the Wales." Branches in New Guinea and elsewhere were closed. An air raid on the northern Queensland town of Darwin caused extensive damage to the Bank of New South Wales branch there, and lesser damage to CBA's branch. During the war, the Bank of New South Wales saw 3,330 (65% ) of its male staff enlist.
After the war, private Australian trading banks were soon entrenched in another conflict. On August 16, 1947 Prime Minister Ben Chifley announced that the banks would be nationalized. According to Chifley's plan, the Commonwealth Bank (Australia's central bank) would acquire the shares of the private banks and then appoint directors to run them as arms of the central bank. The private banks immediately challenged the constitutionality of nationalization and waged a political war to have the Labour Party ousted and eliminate the threat of other obnoxious legislation. The bankers were successful on both counts. The Australian High Court declared the Bank Act of 1947 unconstitutional because it interfered with the freedom of trade and commerce among the states guaranteed in section 92 of the Australian constitution. In 1949, the Labour Party was overwhelmingly defeated in the general election. It was a major victory for the Bank of New South Wales, the Commercial Bank of Australia, and Australia's other private banks.
Throughout the 1950s, the Australian economy was in an upswing. Savings bank deposits were growing in popularity at this time. Before 1956, savings bank operations were conducted exclusively by the government-owned Commonwealth Bank. The Bank of New South Wales entered the savings bank field in the late 1950s and competed aggressively for savings accounts. In compliance with government regulations, the bank earmarked a certain percentage of its savings bank deposits for housing construction loans. Demand for housing and durable goods was high in the 1950s and 1960s. In 1957, the Bank of New South Wales purchased 40% of Australia's largest finance company, the Australian Guarantee Corporation Ltd. (AGC). AGC made loans to businesses as well as consumers and was active in investment and merchant banking as well as insurance.
In 1966, Australia switched from pounds to dollars. For the next two years, the public traded in its imperial currency--pounds, shillings, and pence--for new Australian dollars and cents. Banks had the difficult task of converting to the new decimal currency. Machinery had to be changed, staffs had to be retrained, and accounting had to be translated.
In the 1970s, the Bank of New South Wales and the Commercial Bank of Australia diversified both their services and their areas of operation. Both banks opened more branches overseas. At the same time each was busy acquiring different financial companies at home to expand upon the services they provided. The Bank of New South Wales's holding in the Australian Guarantee Corporation increased to 54% by the early 1970s, while the Commercial Bank of Australia operated a finance company, General Credit Ltd., as a wholly owned subsidiary. Both banks also became involved in merchant banking. The Bank of New South Wales, for instance, owned a substantial number of shares in Partnership Pacific Ltd., Schroder Darling & Company, and Australian United Corporation. CBA held significant interests in the merchant banks Euro-Pacific Finance and International Pacific Corporation. In 1974, Australian banks entered the credit card field with Bankcard. Banks also got involved in insurance activities in the 1970s.
The mid-1970s saw the Australian continent in a severe recession. During these years the large amount of foreign investment in Australia's raw-commodities industries became a political hot potato. Australians felt that foreign investors had too much say in the allocation and development of their resources, particularly in petroleum and mining operations. The fact remained, however, that Australia lacked the capital to develop industry on its own. A debate over capital market regulations grew louder in the late 1970s. In 1979, growing pressure to deregulate the financial markets led to the appointment of a government committee to investigate the effects deregulation would have on the economy.
The committee, headed by Australian businessman Keith Campbell, reported its findings two years later, and deregulation soon followed. Foreign banks were allowed to set up shop in Australia, and many of the restrictions on the trading banks were removed. By 1982, it had become clear that competition from abroad and at home would be fierce in the future. Anticipating this inevitability, the Bank of New South Wales and the Commercial Bank of Australia decided to join forces to protect their position in the domestic market and strengthen their position overseas.
Westpac was formed in October, 1982 with Robert White, not to be confused with the 19th-century guntoting accountant, as general manager. The merger was the largest in Australian history.
Robert White began his banking career at the age of 16 at the Bank of New South Wales. He rose through the ranks, becoming general manager in 1978. White was determined to strengthen Westpac's position in world banking. The bank was a leader in the implementation of technology. Westpac's "handybank" automated teller machine network gave customers instant access to their accounts as early as 1980, and had developed substantially after 1982. In 1984, Westpac began work on its CS90 computerized banking system. Employing an IBM mainframe and computer-aided software engineering designed by the Canadian firm Netron, the bank revolutionized computerized banking. By 1988, Westpac officials were boasting the most advanced system in the world.
Technological innovation was one of Westpac's key goals throughout the 1980s, and diversification was another. The bank stepped up operations in the euro-currency markets. It also opened new offices or branches in Jersey, Los Angeles, Seoul, Kuala Lumpur, and Taipei. Westpac's thrust was rewarded quickly: between 1982 and 1986, assets more than doubled.
In the late 1980s, Westpac took advantage of the deregulated financial markets around the world. In 1986, it took a greater stake in the gold-bullion markets when it purchased part of the London dealer Johnson Matthey Bankers Ltd. In 1987, the bank acquired U.S. bond dealer William E. Pollock Government Securities. Westpac also continued to improve its branch network throughout the Pacific in the face of growing competition from Japanese banks.
Westpac's aggressive moves in the euromarkets and in technological development and application focused a great deal of attention on the bank. Its low exposure to Third World debt helped keep earnings healthy at a time when bad debt provisions were getting the best of many international banks.
On January 1, 1988, Stuart A. Fowler replaced Robert White as Westpac's managing director and CEO. Fowler continued the aggressive campaign begun by White. In 1988, the bank purchased the remaining shares of the Australian Guarantee Corporation, making it a wholly owned subsidiary. As the 1980s closed, Westpac focused on bringing operating costs down, through automation and elimination of redundant branch services.
Westpac's history is one of continuous growth in assets and earnings. Its position as a world-class bank is gaining strength, and its leadership throughout the 1980s has put it in an excellent position for the future. The bank's domestic footing is solid; Westpac controls 25% of Australia's bank deposits. Whether Westpac chooses to expand through another major merger remains to be seen, but the bank's tradition of success indicates a secure future either way.
Principal Subsidiaries: Westpac Banking Corporation; Westpac Savings Bank Ltd; Westpac Bank PNG Ltd.; Westpac Finance Asia Ltd.; Australian Guarantee Corporation Ltd.; Partnership Pacific Ltd.; Westpac Merchant Finance Ltd.; Westpac Properties Ltd.; BLE Capital Ltd.; Bank of Kiribati Ltd.; International Business Analysis Pty Ltd.; Mase Westpac Limited; Westpac Pollock Inc.; Westpac Travel Limited; Westpac Financial Services Group Ltd.; Westpac Life Ltd.; Ord Minnett Group Limited.
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