Westpac Banking Corp. is eyeing a possible IPO of its auto loans business in November that could value the division at A$4.9 billion, The Australian reported Feb. 2, without citing sources.
The bank is reportedly listing its dealer and car loans operations, with loans worth A$15 billion. Morgan Stanley is reportedly working with Westpac on the auto loans division and is separating the operation in preparation for the IPO, the report said.
Westpac's car loans operations generate about A$350 million in earnings and its value is expected to be about 14x those profits. The Australian bank is also expected to include in the listing its A$3.9 billion portfolio of dealer financing loans, purchased from Lloyds Banking Group Plc more than four years ago. Westpac had initially hoped to sell the portfolio to China's HNA Group before the conglomerate rolled back its overseas expansion plans.
The company is not the only major Australian bank considering selling its auto loans operations, as Commonwealth Bank of Australia and National Australia Bank Ltd. could also do so in the future, the report said. CBA's business could be worth about A$2 billion, while NAB's dealer and car loans operation may carry a similar value.
The Australian noted that new rules regulating commissions paid to dealers on car loans may be driving these divestments. Currently, lenders pay so-called "flex commissions" to car dealers, allowing them to set their own interest rates on auto loans and generate more profit by charging higher rates.
Starting November 2018, car dealers will have to set rates within a range, with the difference made between the base rate and amount paid by the car buyer split between the dealer and the bank. Once the regulations are in place, banks may not have be able to justify having these divisions, which generally only see returns of 5% at the most, the report said.
