ACCC eyes car loans in Westpac's Lloyds deal
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
Frequently Asked Questions about this Article…
Westpac's acquisition of Lloyds' Australian commercial lending book is significant because it involves a $1.45 billion deal that adds $8 billion in largely commercial loans to Westpac's portfolio. This move strengthens Westpac's position in the motor vehicle financing sector, a key area of focus for the Australian Competition and Consumer Commission (ACCC).
The ACCC is involved in assessing the impact of Westpac's acquisition on competition, particularly in the motor vehicle financing sector. They are gathering input from car dealers about the potential effects on financing options and the availability of point-of-sale financing for customers.
Motor vehicle financing is a focus because the lending book includes $3.9 billion in motor vehicle financing loans, which are crucial for car dealers and customers. The ACCC is evaluating how this acquisition might affect the availability and competitiveness of financing options in this sector.
One potential risk is that Westpac might have to sell some of the loans if the ACCC disagrees with the acquisition. Additionally, Westpac is taking on regulatory risk since the acquisition is not contingent upon regulatory approval, which could impact the deal's success.
Westpac could benefit from the acquisition by achieving cost savings through the merger, which could improve the value of the loan book. The acquisition also expands Westpac's commercial loan portfolio, particularly in motor vehicle and equipment finance.
A decision on Westpac's acquisition of Lloyds' lending book is expected by the end of next month. This timeline allows the ACCC to thoroughly assess the competitive implications of the deal.
Westpac must set aside more capital as a buffer for the newly acquired loans, which carry more risk compared to housing loans. This is necessary to manage the increased risk associated with the commercial loans from Lloyds' lending book.
Approximately 80% of the loans acquired from Lloyds relate to motor vehicle and equipment finance. This highlights the importance of these sectors in the acquisition and the potential impact on Westpac's business strategy.
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