The competition regulator has started probing car dealers over the expected impact of Westpac's $1.45 billion acquisition of the Australian commercial lending book of UK 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 global financial crisis sparked a shakeout of the car financing sector, with Westpac and its St George offshoot remaining key players.
The lending book contains some $3.9 billion in motor vehicle financing loans, split between 343 car dealers and 151,000 customers.
In particular the ACCC will assess the financing options available for dealerships to help secure new stock as well as offer point-of-sale financing for customers.
In an issues paper, the commission has asked dealers to outline how easily Lloyds' specialist floor-plan financing can be replaced by 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 said they 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 on 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 financing and motor vehicle financing. The rest relates to corporate loans, which largely overlap with Westpac's client base.
Mr German said Westpac appeared to have paid a "full" price for the loan book, although value could be improved if savings could be achieved from the merger.
The ACCC is taking submissions for the next two weeks, with a decision on the planned acquisition expected by the end of next month.
For Westpac, the move on Lloyds in Australia marks the biggest acquisition since it paid $18.5 billion for St George Bank in 2008.
Unlike a traditional banking acquisition, the buyout does not come with a branch network or vast banking infrastructure. It largely represents the transfer of a loans book between the banks. However, there will be the transfer of 800 Lloyds staff to Westpac with some job losses expected.
The acquisition means Westpac now has an additional $8 billion in largely commercial loans to fund. The transaction also means Westpac must set aside more capital to act as a buffer for the loans that have more risk attached to them than do housing loans.
Westpac shares closed 2.45 per cent higher at $32.99 on Friday.