Westpac Banking (WBK) to Divest Vendor Finance Business

Westpac Banking Corporation WBK announced a deal to divest the Vendor Finance business, with an aim of focusing on core operations. The deal, whose value hasn’t been disclosed yet, is expected to close by April 2021.

The business, which supports third parties to fund small equipment finance loans, will be acquired by Angle Finance, a portfolio company of U.S.-based Cerberus Capital Management L.P. The transaction will result in a transfer of approximately A$500 million ($359.8 million) of customer loans.

Vendor Finance is presently part of Westpac Banking’s subsidiary, Capital Finance Australia Limited (CFAL). The company plans to continue to retain the remaining CFAL Equipment Finance operation.

Westpac Banking is likely to incur a modest accounting loss following the sale, which has been “structured with an initial payment on completion and deferred consideration payable over the two-year period following completion.” Nonetheless, the deal will have immaterial impact on the company’s balance sheet and capital ratios.

Jason Yetton, CEO of Westpac Banking’s Specialist Businesses division said “The sale represents the first transaction of the Group’s simplification initiatives and brings certainty for Vendor Finance customers and new opportunities for our people.”

In May, Westpac Banking began the review of underperforming operations including wealth platforms, insurance and auto finance, along with superannuation and retirement products. Further, following a plunge in first-half 2020 profits owing to a surge in loan loss provisions and legal costs surrounding the money laundering scandal, the company now intends to divest non-core businesses.

Additionally, last week, Westpac Banking became the latest bank to cut dividend. The company’s CEO Peter King noted that the economic backdrop was "highly uncertain" and hence, it slashed first-half dividend. Earlier in March, several major U.K.-based banks including HSBC Holdings HSBC, Barclays BCS, Standard Chartered and Lloyds Banking Group LYG announced the suspension of all types of shareholder distributions.

Shares of Westpac Banking have lost 22.8% over the past six months compared with the industry’s 24.3% decline.

Currently, Westpac Banking carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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