A clean slate for Westpac's new CEO

Gail Kelly is one of the most controlled and measured chief executives in the country. Therefore, it perhaps isn't a surprise that Westpac's succession has been planned and executed in a very methodical and meticulous way.

Despite the constant speculation about her position that have swirled around her for years (and a few uncomfortable moments during her seven years at the helm), Kelly will leave the bank in pristine condition when she hands over its leadership to Brian Hartzer next February, having ticked the key boxes she was asked to tick when she was appointed in 2008.

Perhaps the simplest metric to measure the success of Kelly's term is the one her chairman, Lindsay Maxstead, proffered today. He said Westpac's market capitalisation had more than doubled from just under $50 billion when she was appointed to about $104bn today.

The more meaningful metrics, however, would be Westpac's sector-leading capital and productivity ratios and its leading customer satisfaction ratings in both its retail and business banking units. The role of the first female CEO of a major bank in this country in promoting women to senior positions might also get a mention in any post-career assessment of her contribution to the group.

Kelly was appointed to improve Westpac's customer service and the cross-selling of its financial service products and has done so, creating the foundations for continued internal growth. She said today she was most proud of the culture within the bank that Hartzer will inherit; staff satisfaction and engagement is highly correlated with customer satisfaction and financial of performance.

Hartzer, appointed to run an aggregated Australian Financial Services business (the core of the group) three years ago, was both Kelly's obvious successor and an example of the disciplined approach that Kelly and her board have demonstrated.

Hartzer was the boy wonder that former ANZ chief executive John McFarlane preferred as his successor in 2008. But his age at the time (40) and Charles Goode's vision of a super-regional bank meant ANZ chose the vastly more experienced and credentialed Mike Smith.

Hartzer departed shortly after, joining up with McFarlane who was by then on the board of the reeling Royal Bank of Scotland. Hartzer was given charge of RBS' retail and wealth management operations, where he added to his reputation as a first-rate banker.

From the moment he was recruited by Westpac he was, despite the presence of a high-quality executive team under Kelly, her obvious successor. He wouldn't have given up the RBS role unless he believed that he would succeed her.

Westpac, however, gave itself time to assess him at first hand. His three years leading the Australian financial services business have been highly successful, delivering compound double-digit growth rates in earnings off a more efficient cost base.

He also had an opportunity to demonstrate what his former colleagues at ANZ already knew. Hartzer is highly personable -- he's a much more gregarious personality than Kelly -- who appears to inspire loyalty among his colleagues as well as generating good results. When he joined Westpac he was reportedly inundated with requests for jobs from those he worked with at ANZ.

Bank CEOs always face challenges. Kelly had acquired her former employer, St George (where she was CEO for six years after being recruited from Commonwealth Bank) in 2008, just as the financial crisis erupted. That by itself created a major challenge, given St George's reliance on capital markets for funding at a time when those markets froze.

Westpac exacerbated the scale of its funding issues when, with CBA, it embarked on a post-crisis home lending binge that appeared to generate some tension within the Westpac boardroom. That subsequently led to Kelly becoming very focused, with great success, on the liability side of her balance sheet and on attracting customer deposits.

Today Westpac is very conservatively but very strongly placed. Hartzer, however, will be taking over just as the Murray inquiry into the financial services system recommendations are being considered by the federal government.

It appears almost inevitable that the major banks, already facing a range of tougher capital and liquidity requirements flowing from the international response to the 2008 crisis, will confront even more returns-pressuring capital surcharges and perhaps adverse changes to the risk-weightings regime for housing loans. These would impact Westpac and CBA more than NAB and ANZ.

Those sorts of changes to the regulatory settings would force changes to the calibrations of Westpac's strategies and balance sheet, even though it is very strongly capitalised today.

Hartzer and his board would also be acutely aware of the impact that technology is having and will have in future on financial services and the threats and opportunities that technological developments may generate.

In that sense, the generational change occurring within the group is well-timed. But more broadly, Kelly and her Westpac board have picked a good moment to execute the handover, with no obvious legacy issues and a 'clean slate' opportunity for her successor to develop his own strategies for responding to the regulatory and technological issues that the major banks will be confronted with.