WESTPAC expects to add $ 100 million in earnings and expand its reach, scale and capability in equipment, car and corporate finance after winning the race for the last of Lloyds Banking Groups Australian assets.
Westpac will pay $ 1.45 billion, a $ 260 million premium to net assets, for the loan book that includes Capital Finance Australia and BOS International Australia, which are being sold by Lloyds to focus on its UK home market.
The deal is expected to add to earnings per share from Westpac’s financial year, which starts this month, and add $ 100 million to earnings by 2015 when integration is completed.
The $ 8.4 billion loan book includes mostly regional motor vehicle loans totalling $ 3.9bn, an equipment book of $ 2.9bn and a corporate loan portfolio worth $ 1.6bn. Westpac also hopes to entice $ 900 million of deposits from 22 corporate clients across to Westpac as it completes the acqusition.
The agreement had been widely flagged as rival bidders dropped away, with Macquarie told by Lloyds this week that Westpac had been chosen as the preferred buyer.
ANZ and a Pepper-led consortium were also in the running for the books but ANZ pulled out before final offers were due on September 30. Pepper also gave up the chase this week.
Westpac chief executive Gail Kelly said it was a ‘’straightforward’’ transaction that made commercial and strategic sense for Australia’s second biggest bank by market value.
“These are strongly performing businesses that we know well and that will expand our reach and capability in target segments,” Ms Kelly said.
The car finance book is spread across regional Australia and expected to complement the existing, metropolitan-focused Westpac/ St George car finance business. The equipment finance business also adds capabilities to Westpac. Westpac said job losses among a mooted 700 staff were likely to be limited to more central administrative roles that overlapped with its own staff.
Integration costs are expected to be about $ 130m and ongoing synergies about $ 70m before tax a year, which Westpac chief financial officer Phillip Coffey said was above average because of the bank’s scale and the complementary nature of the businesses. Up to 80 per cent of customers in some of the businesses overlap with Westpac customers.
The acquisition is the Australian lender’s largest since it paid $ 12.6bn for St George in 2008. It will soak up around 38 basis points of Westpac’s tier one capital, pushing it down close to 8 per cent on the last reported numbers for the third quarter. But Ms Kelly said the capital base was likely to be higher than that with an additional quarter of earnings when the bank reports full year profits next month.
The sale of Lloyds’ remaining loans to Westpac marks the bank’s exit from Australia.
The British bank is offloading assets it considers non-core to shore up its balance sheet after it was bailed out by the UK government in 2008. The UK government last month sold 6 per cent of its stake in the lender for 3.2 billion pounds, cutting its holding to 33 per cent as part of a return to full private ownership.
Lloyds’ Australian arm posted a $ 148.3m loss last year, improving on a $ 1.2bn loss in 2011. It sold $ 4.9bn of property and corporate loans during the year to December 31, following a $ 7.5bn reduction in loans in 2011.
Ms Kelly said Westpac did not believe the deal would result in a substantial lessening of competition – a key test for regulators – in any of the markets touched by the change of ownership.
Australian Competition & Consumer Commission (ACCC) chairman Rod Sims said this week the watchdog would look at a purchase by Westpac because the market appeared to already be concentrated.
“We don’t have much information now but we do know that Lloyds (has) a business that finances floor plans, motor vehicle dealers and it has point-of-sale vehicle financing.
Both Westpac and Macquarie are also in that business and we know it’s a reasonably concentrated market.”
Additional reporting: Dow Jones Newswires