Westpac Buys Lloyds Australia Assets for A$1.45 Billion -- Update

   By Robb M. Stewart 
 

MELBOURNE, Australia--Westpac Banking Corp. (WBC.AU) agreed to buy the Australian assets of U.K. lender Lloyds Banking Group PLC (LLOY.LN), further concentrating a local banking market in a move that could draw scrutiny from regulators.

Australia's second-largest bank by market value said Friday it would pay 1.45 billion Australian dollars (US$1.37 billion) for Lloyds's vehicle, equipment and commercial lending units in its largest acquisition since it paid A$12.6 billion for St George Bank Ltd. in 2008.

The latest deal will result in the Sydney-based bank obtaining a more-than 40% share of the Australian leasing finance market and help broaden its business away from a reliance on home loans. Westpac will get a loan book worth about A$8.4 billion, including equipment finance, the lender said in a stock exchange filing.

Chief Executive Gail Kelly downplayed the regulatory risk of the deal Friday. Still, competition watchdog the Australian Competition and Consumer Commission said in advance of the deal it would likely conduct a public review of any acquisition of Lloyds's Australian business by Westpac.

Thanks to prudent lending practices, Australia's four largest banks--Commonwealth Bank of Australia Ltd. (CBA.AU), Westpac, Australia & New Zealand Banking Group Ltd. (ANZ.AU) and National Australia Bank Ltd. (NAB.AU)--emerged from the global financial crisis relatively unscathed. The four managed to maintain their AA credit ratings even as many banks in Europe and the U.S. had theirs chopped, increasing their market dominance by buying up smaller players who struggled as the credit crisis spread in late 2008.

"Our capital position going into this is strong and it will remain strong," Westpac's Chief Financial Officer Phil Coffey said Friday. He said the purchase was expected to add at least A$100 million to cash earnings by fiscal 2015.

Shares in Westpac were 2.3% higher at A$32.93 late in Sydney trading Friday, in line with a rise in the shares of other Australian lenders.

The deal confirms a report earlier this week by The Wall Street Journal, which said Westpac was the frontrunner in an auction that also included Australian investment bank Macquarie Group Ltd. (MQG.AU) and a consortium led by non-bank lender Pepper Australia Pty. Australia & New Zealand Banking Group Ltd. withdrew from the process before final offers were due Sept. 30.

The acquisition includes Lloyds's A$3.9 billion motor vehicle loan portfolio, A$2.9 billion in equipment finance and A$1.6 billion in corporate loans, Westpac said in a stock exchange filing.

The effective exit of Lloyds from the Australian market comes as the U.K. government begins returning its bailed-out banks to private hands. Last month, it reduced its stake in Lloyds to 33% by selling a 6% interest that generated 3.21 billion British pounds for the U.K. Treasury.

By disposing the units, Lloyds will be left with a minor presence in the Australian market, where it will provide services such as interest-rate swaps and foreign-exchange hedging to clients. It follows a series of other divestments by the lender, which is taking steps to meet the U.K. government's orders to pare back assets to boost capital buffers.

Goldman Sachs Group Inc. and Credit Suisse AG advised Lloyds on the sale of its businesses while UBS AG advised Westpac.

-Gillian Tan in Sydney contributed to this article.

Write to Robb M. Stewart at [e-mail]

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