Cerberus buys Westpac car loan portfolio

Picture: AFP

Private equity firm Cerberus Capital Management has won the contest to buy Westpac’s auto loan business, sources say.

The buyout fund was reavealed as the winner of the conest on Tuesday by DataRoom and fended off competition from Liberty Financial in the final stages after Kohlberg Kravis Roberts earlier dropped out and interest from Bain Capital with Allied Credit was also said to be waning.

TPG Capital had been partnering with Liberty Financial, but left the race about six weeks ago.

Final bids were due on June 11.

Morgan Stanley has been selling the loans on offer from Westpac, with the offer initially to be about $11bn.

It was later scaled back to about $2bn, with only the floor-plan financing available to a new owner and the opportunity to write new business.

Market sources earlier estimated that the valuation of the goodwill for the auto loans operation that writes about $5bn of loans annually was between $450m and $700m.

Westpac has been selling its non-core assets as part of a move to simplify its business.

The sale comes after tougher rules on interest rates charged on auto loans and other strict measures were introduced by the regulator.

DataRoom revealed Morgan Stanley had been hired about two years ago to sell the business, which first underwent an amount of preparation to separate the operation from Westpac, and it revealed that the formal sales process was kicking off in February.

This was at a time when a strong improvement in car sales had been fuelling lending in the sector, with automotive lending up 24 per cent in the last three months of last year compared to the previous three months.

New York-based Cerberus Capital Management is an alternative investment firm run by co-founder Steve Feinberg, with $US45bn ($60bn) worth of assets across credit, private equity and real estate platforms.

It has been an active participant in the Australian market of late with a focus on finance assets.

Cerberus has a managing director based in Sydney, as well as offices in the US, Europe and Asia. Its interest in the Westpac auto business was first revealed by this column.

Last year, Cerberus bought Westpac’s Vendor Finance business through its company Angle Finance, securing control of a loan portfolio worth about $500m.

It also looked at ANZ’s UDC finance business in New Zealand.

The auto loans division consists of loans from Bankwest and AGC portfolios purchased over time by Westpac.

Meanwhile, Morgan Stanley has also been tapped to sell Westpac’s wealth management operations, which are expected to be on offer in the second half of this year for a price of about $1bn.

Buyout fund Kohlberg Kravis Roberts is considered the most keen acquirer.

Westpac last year started moving forward on plans to sell more than $4bn worth of non-core wealth assets, as the bank focuses on mainstream banking and returns funds to its core operations amid the challenging Covid-19 environment.

It sold its Pacific Bank to Kina Securities for $420m, while its general insurance division was offloaded late last year to Allianz for $725m.

Along with auto loans, the operations all have sat within Westpac’s recently formed Specialist Businesses unit overseen by Jason Yetton.

Other major Australian banks are also offloading non- core assets, with Commonwealth Bank on Monday announcing the sale of its general insurance unit to insurer Hollard in a deal that is expected to value the business at more than $1bn.