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Big 4 buying up overseas loan books. Signs of the times as Australian consumer credit demand drops?

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Westpac digests Lloyds deal

As the global crisis peaked in October 2008, CBA paid $2.5 billion or 0.8 times net asset value for HBOS' Australian operation, Bankwest, a fire-sale deal that became only marginally less lucrative when CBA subsequently injected $400 million to cover bad debts in the Bankwest portfolio.

ANZ agreed to pay Royal Bank of Scotland $US550 million ($583 million) or 1.1 times book value for an Asian banking franchise in 2009, and Westpac has now agreed to pay British-based Lloyds $1.45 billion or 1.22 times book value for three businesses - an equipment finance unit that is split two-thirds-one-third between small business and larger companies, a motor vehicle finance book that is dominated by consumer vehicle loans, and a corporate loan portfolio that has already been cleaned up by Lloyds to make it more attractive. To put those prices in perspective, Westpac trades about three times book value.

NAB is the odd bank out. Instead of buying up as overseas banks quit Australia, it is saddled with a British banking network. It would retreat to its home market if it could, but has not a found a buyer.

The deal swings $8.4 billion of gross assets onto Westpac's balance sheet at a time when loan demand is sluggish. Credit expanded by just 3.4 per cent in Australia in the year to August, and only managed that because home lending volumes rose by 4.7 per cent. Personal lending rose by 0.9 per cent and business credit increased by 1.4 per cent.

Westpac had risk-weighted assets of $307 billion at June 30 and will easily digest the deal, assuming Australian Competition and Consumer Commission chairman Rod Sims approves it.

Westpac is buying a $2.9 billion equipment leasing portfolio, and the other three big banks and GE are in the market. NAB and GE are estimated to have markets shares of about 20 per cent, ANZ, CBA and Westpac have shares of about 12 per cent, and Lloyds has about 5 per cent. There should be no competition implications.

Its acquisition of Lloyds' $1.16 billion corporate loan portfolio should also be waved through. It is a drop in the $740 billion national corporate lending bucket.

Sims will, however, look closely at the Westpac's purchase of $700 million of car dealer finance for vehicles on dealer lots, and $3.2 billion of personal car finance that is sold through the dealerships.

ANZ's Esanda is the biggest dealer financier. Westpac is a player, but if enough dealers are funding their cars using general corporate facilities, competition concerns fade.

Lloyds' $3.2 billion personal car finance acquisition is more vulnerable. Loans to car buyers are made through the dealerships on behalf of Westpac and other lenders, and Westpac accounts for about 23 per cent of the supply. Lloyds has a 20 per cent share, so the merged total is more than 40 per cent and in ASIC roadblock territory.

The question again, however, is whether other borrowing options exist. One estimate on Friday was that about three-quarters of the finance for car buyers comes from elsewhere - as personal loans, for example, or through car company-financiers. If so, Westpac's share of the total retail car finance market after the Lloyds acquisition will be about 11 per cent, not enough to concern the ACCC.


Comment:

Competition in Australia lending and finance is widely regarded as a farce.

The front windows of the Big 4 and even the smaller banks and lenders are still overshadowed by the hands of the Big 4 and the major overseas megabanks like JP Morgan and HSBC.

How can the ACCC operate effectively in this environment of illusory competition?

Where are the interests of consumers represented in these deals and ACCC deliberations?

When will BFCSA, the peak financial consumer body be consulted on each of these important regulatory determinations?

Without the involvement of a recognised consumer representative these deals could have disasterous consequences, if the experiences of Bank West customers are anything to go by.

Much more protection must be put in place in case these deals fail to deliver and the existing Australian Big 4 customers are squeezed and asset stripped like last time. 

Demand a freeze on all toxic loans now!

 

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Guest Monday, 16 September 2019