Westpac simplifies with $1bn sale of wholesale car dealer loans to Cerberus Capital Management

Westpac will exit $1bn of car dealer loans and run down its $10bn portfolio of retail auto loans.

Westpac’s Jason Yetton. Photographer: Adam Yip

Westpac has reached another milestone in its simplification strategy by selling $1bn of wholesale car dealer loans to private equity firm Cerberus Capital Management.

The deal will generate an accounting profit and proceed according to the final value of the portfolio transferred.

It is expected to add about six basis points to Westpac’s common equity tier one capital ratio to 12.72 per cent at the end of March, including deals announced but not yet settled.

Westpac will retain its $10bn book of existing retail auto loans originated by the businesses it will exit, with the loans to go into run-off.

“This sale brings certainty for our customers, new opportunities for our people, and continues the progress we are making on becoming a simpler bank,” Westpac group chief executive specialist businesses and group strategy Jason Yetton said.

Completion is expected to occur before the end of the year.

The buyer of the vehicle dealer finance and novated leasing businesses is Angle Finance, a portfolio company of Cerberus which is a leader in alternative asset investment with $US55bn in assets across complementary credit, private equity and real estate strategies.

As a result of the Westpac transaction, Angle Finance will become the auto finance market leader in Australia with about a one-quarter share, of the segment, or $4bn in consumer and commercial loans.

More than 500 professionals will join Angle Finance in the coming months, including in excess of 200 Westpac employees, to lead the auto financing platform.

Westpac will transfer over 100 auto dealer and introducer agreements covering 1200 dealerships, as well as strategic alliance agreements with global vehicle manufacturers and Australia’s largest salary packaging firms.

Angle Finance chairman Bernie Campbell said the core of the auto finance business was partnerships.

“We will seek to help our partners’ businesses grow and succeed through significant investments in technology, streamlined processes, and initiatives aimed at elevating customer experiences,” Mr Campbell said.

“With the backing of Cerberus, we are excited to build on auto finance’s established platform under the Angle Auto Finance banner.”

Cerberus Australia Advisers managing director David McWilliam said the plan was to grow the business by investing in the best technology and allocating “significant capital.

“While there’s a lot of demand for autos, the headwind is the challenge of getting inventory because of supply-chain issues,” Mr McWilliam said.

“People will also turn over their cars to go electric.”

On interest rates, he said it “feels like we’re at the bottom of the rates cycle and rates will go up from here”.

“But we will be more efficient through technology, which means we’ll have a lower cost base and be able to absorb more of the rate rises than our competitors.

“Our competitors are non-core businesses for their owners and have legacy systems.”

Cerberus, he said, excelled at buying “unloved” businesses from banks, and pouring in new capital and updating technology to create market leaders.

The main focus of the banks tended to be on their mortgage books.