The competition regulator has started asking car dealers about the expected impact of Westpac's $1.45 billion acquisition of the Australian commercial lending book of British bank Lloyds.
Specialist motor vehicle financing is emerging as a key area of focus for the Australian Competition and Consumer Commission as it assesses the move on the $8 billion lending book. The onset of the global financial crisis sparked a shakeout of the car financing sector, with Westpac and its St George offshoot remaining as key players.
The lending book contains some $3.9 billion in motor vehicle financing loans, which is split between 343 car dealers and 151,000 car loan customers.
In particular the ACCC will assess the financing options available for dealerships to help secure new stock as well as offering point-of-sale financing for customers.
In an issues paper, the ACCC has asked car dealers to outline how easily Lloyds' specialist floor plan financing can be substituted with other types of credit facilities. It also asks them what other sort of point-of-sale financing can be made available to customers.
On Friday, Westpac executives were confident of securing backing for the deal from the ACCC.
Even so, Nomura analyst Victor German believes there was a risk that Westpac could be forced to onsell some of the loans if it took a downbeat view of the acquisition.
"Given that the acquisition is not contingent upon regulatory approval, it appears that Westpac is taking on regulatory risk," Mr German said. "There is still a risk that the ACCC might disagree."
Of the businesses that Westpac has acquired, about 80 per cent of the loans relate to equipment finance and motor vehicle finance. The rest relate to corporate loans, which largely overlap with Westpac's client base.
Mr German said Westpac appeared to pay a "full" price for the loan book, although value can be improved if cost savings can be achieved from the merger.
A decision on the planned acquisition is expected by the end of next month.
The acquisition means Westpac now has an additional $8 billion in largely commercial loans to fund. Westpac also must set aside more capital to act as a buffer for the loans that have more risk attached to them than housing loans.
The bank behind pay-day loans — Page 24