* Assets on sale have face value of some A$8.5 billion
* Sell-off part of global move to offload non-core assets
* Macquarie, Pepper bids likely low, sector watchers say
By Jackie Range
SYDNEY, Oct 1 In Lloyds Banking Group's
international garage sale, Pepper Australia and Macquarie Group
submitted competing bids for assets that the British
bank is offloading in Australia as the auction drew to a close.
But sector watchers expect the bids are likely to be on the
low end of Lloyds' hopes, potentially leaving the way clear for
a rival offer expected from Australia's second-biggest bank,
Westpac Banking Corp.
Lloyds is selling corporate loan, motor and equipment
financing businesses in Australia with a face value of some
A$8.5 billion ($7.95 billion), people familiar with the process
The sale is part of a global plan by Lloyds to cut costs and
strengthen its balance sheet as the bank shrinks its
international operations and refocuses on lending to British
households and businesses.
Lloyds began its sell-off with a portfolio worth some 200
billion pounds ($324 billion), and has now more than halved it.
The British government is eventually expected to sell its 32.7
percent share in the bank.
People familiar with the process said on Tuesday that
non-bank lender Pepper Australia and Macquarie, the country's
biggest investment bank, made final bids for the assets. The
operations up for sale now have an estimated net book value of
A$1 billion, according to one person familiar with the matter.
Pepper Australia's bid highlights its ambitions, after
having grown rapidly through a string of acquisitions since
being founded in 2001 by its current executive chairman Mike
Culhane, a former investment banking executive. In 2011 Pepper
bought GE Capital's Australia and New Zealand mortgage lending
business, housing some A$5 billion of residential mortgages.
But investment industry sources said the bids by both
Pepper, which is leading a consortium that also features Bank of
America Merrill Lynch, and Macquarie, are likely to be on the
low side and potentially be trumped by Westpac, Australia's
second-biggest bank by market capitalisation.
Westpac was a shortlisted contender ahead of the Sept. 30
deadline for final bids. It declined to say if it is still in
the race, but is widely expected to have put in a bid.
LLOYDS' SELL-OFF DRIVE
Up for sale in Australia are Lloyds BOS International
corporate loans business and its Capital Finance motor and
equipment finance business, another person familiar with the
matter said. Among the few assets Lloyds assets left in
Australia after this deal would be a branch licence.
Elsewhere this year Lloyds has made U.S. mortgage portfolio
disposals and sold its Spanish retail banking business. Last
week it agreed to sell a portfolio of European commercial real
estate loans to private equity group Cerberus for 263 million
In Australia, Lloyds has already sold a A$371 million
portfolio of loan assets from its unit BOS International
Australia to Bain Capital's Sankaty Advisors. Japan's Nomura
Holdings Inc also purchased loan assets with a face
value of around A$150 million for an undisclosed sum, sources
If either Pepper or Macquarie wins, neither is expected to
face regulatory hurdles. But Westpac could attract attention if
it were to emerge as the winner because of its size as a lender
in the Australian market, a banking source said.
For Macquarie, a deal could enhance earnings per share by
using up some surplus capital and liquidity, Brian Johnson, an
analyst at CLSA said.
"But I still don't think they would buy it unless they
perceived it to be an absolute bargain," he said.
Pepper is eyeing the Capital Finance operation, while
consortium partner Bank of America Merrill Lynch is looking to
buy the BOS International corporate loan book, according to
people familiar with the process.
Pepper is receiving mergers and acquisitions advice from
Bank of America Merrill Lynch. Goldman Sachs is advising
Lloyd's on the sale.
Australia and New Zealand Banking Group Ltd was
also previously vying for the assets, but dropped out of the
race, people familiar with the process said.
Goldman Sachs wasn't immediately available to comment.
Pepper Australia, Lloyds, Westpac, Macquarie, Bank of
America Merrill Lynch and ANZ declined to comment.