Why Westpac is giving away its $37 billion BT super business

Westpac investors hoping for a windfall when the bank gets out of its superannuation business BT are set for disappointment. The outfit manages $37 billion in funds but Westpac will receive no financial consideration when BT is ‘transferred’ to a new owner.

Regulatory changes that have reduced margins to a sliver increased competition have conspired to render BT superannuation almost unable to generate a profit from fees after expenses are taken into account, according to sources familiar with the process.

Westpac announced on Thursday that it will write-off to zero the value of BT’s $122 million in superannuation goodwill after the “carrying value of our superannuation intangible assets was reviewed and found to be no longer supportable”. This also includes $45 million of its capitalised software.

Other major banks have disposed of their superannuation business for hundreds of millions of dollars in recent years. But these asset sales have included more than just pure superannuation – such as businesses like platforms, administration or product manufacturing assets.

Industry experts say, however, there are rules around the sale of pure superannuation business that don’t allow new owners to pay financial consideration. Instead, members of the BT superannuation would be moved in bulk to another fund via what is called a ‘successor fund transfer’.

The decision about where BT super will land is left in the hands of the trustee, BT Fund Management, which needs to assess any deal to transfer the super business based on what is in the best interests of the 580,000 members.

This decision would also consider the performance and fees of the funds that are in the process of tendering for BT super business.

The question of whether the trustee could even recoup the expenses associated with transferring the super business to a new owner was recently the subject of court proceedings -aimed at providing some clarity.

Head of BT Financial Group, Matt Rady, has previously said that any costs which might be recovered from the merged fund as a result of the deal would be going to the benefit of BT super fund members and not Westpac.