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Westpac Said to Bid About A$2.1 Billion for Lloyds Assets

Westpac Offices
The Westpac Banking Corp. logo is displayed outside the company's Kent Street offices in Sydney. For Westpac, the second-largest mortgage lender in the country, buying the Lloyds Banking Group Plc's assets would expand its auto leasing and corporate-loan portfolio. Photographer: Ian Waldie/Bloomberg

Oct. 9 (Bloomberg) -- Westpac Banking Corp., Australia’s second-biggest lender by market value, bid about A$2.1 billion ($2 billion) for Lloyds Banking Group Plc’s assets in the country, said a person with knowledge of the matter.

Westpac is in discussions with Lloyds on the offer, said two people with knowledge of the process, who asked not to be identified because the information is private. Macquarie Group Ltd. and Pepper Australia Pty have also made bids for the assets, people familiar with the matter have said.

The deal would mark Westpac’s biggest acquisition since it bought St. George Bank Ltd. for A$18.5 billion in 2008. The Lloyds transaction would allow Westpac Chief Executive Officer Gail Kelly to add car leasing and corporate-loan assets to a loan book dominated by mortgages.

“It is more of a one-off transaction that is available to add growth when credit demand is weak,” said Angus Gluskie, who helps oversee about A$500 million in assets, including Westpac shares, as chief investment officer at White Funds Management Pty in Sydney. “Assuming Westpac has priced the risk correctly, it can give them reasonable returns.”

Outstanding mortgages in Australia rose 4.7 percent in the year to Aug. 31 and business credit climbed 1.4 percent, according to central bank data. Housing loans advanced on average 10.8 percent annually over the past decade while business lending grew 7.5 percent, the data show.

Goodwill

Kelly, who ran St. George before the Westpac takeover, in May agreed to pay a special dividend for the first time since 1988 after first-half cash earnings rose 10 percent. Westpac shares have risen 21 percent since Kelly took over on Feb. 1, 2008, the second-best performer among the four major Australian lenders. The stock added 0.6 today at 3 p.m. in Sydney.

Westpac’s offer would include about A$360 million of goodwill for about A$1.7 billion of net assets, the person said. Goldman Sachs Group Inc. is advising Lloyds on the sale, which includes the car leasing Capital Finance unit and corporate loans, people familiar with the process have said.

The Australian Competition & Consumer commission said today in an e-mailed statement that it would probably review any announced transaction.

Lloyds is strengthening its balance sheet by selling assets and cutting costs following the bank’s 20 billion-pound ($32 billion) bailout in 2008. Lloyds International Pty, the London-based lender’s Australian unit, reported a loss of A$148.3 million in 2012, after a shortfall of A$1.2 billion the previous year, according to company filings. The division reduced assets by 24 percent to A$12.2 billion last year, the documents show.

Spokesmen for Westpac, Lloyds, Macquarie and Pepper declined to comment on the transaction.

Four Pillars

Australia’s so-called four-pillar policy prevents the largest four lenders -- Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac -- from buying each other.

Mortgages accounted for 69 percent of Westpac’s outstanding loans in Australia as of March 31, according to a company filing. Business lending made up 27 percent of its loan book.

Westpac, established in 1817 as the Bank of New South Wales, is Australia’s oldest lender. It had 1,273 branches across the country as of June 30, the Australian Prudential Regulatory Authority said Aug. 21.

To contact the reporters on this story: Paulina Duran in Sydney at pduran10@bloomberg.net; Brett Foley in Melbourne at bfoley8@bloomberg.net; Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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