1. The Australian
12:00AMOctober 10, 2015
Michael Bennet
ANZ has hailed the complex sale of its Esanda business to Macquarie Group, declaring that
returns were heading south for the motor dealer finance operation and $8 billion of funding
capacity has been freed up to plough into more profitable areas.
Amid mixed reaction to the deal, ANZ Australia chief Mark Whelan told The Weekend
Australian that while financing consumers to buy cars had provided good return on equity,
the bank could only convert 5 per cent to core customers and greater liquidity in markets
was increasing competition.
He said globally ROE from similar businesses was 10-12 per cent compared to Esanda’s at
around 14 per cent, “but we think it’s heading one way, and that’s south”. Notably, ANZ had
to risk- weight the Esanda book at 65 per cent, versus an average of 25 per cent for
mortgages, thus generating more leverage and higher profits.
“We don’t get direct access to the customer, we don’t control the sale process and we think
the returns on this business are likely to continue to remain under pressure going forward,”
he said.
“(But) if I put the $8bn into mortgages, for example, even at a 25 per cent risk weighting
which is what the regulator is taking us to, it’s 2.5 times the leverage and I’m putting it into
an asset with a higher ROE.
“So that looks great for shareholders. Then there is also potential cross-sell of insurance,
credit cards, bank accounts. Strategically this makes enormous sense. Plus, the group gets
20 basis points of capital relief.”
The comments came as UBS analysts said there was “limited economic value” to Macquarie
shareholders from the deal, citing the dilution to the group’s ROE and erosion of earnings to
the staff bonus pool.
Esanda generated $120 million in after tax earnings for ANZ, but is expected to deliver $74m
for Macquarie as the bonus pool takes its cut, according to CLSA.
While still liking the deal for Macquarie, CLSA analyst Brian Johnson added: “We don’t
believe disclosed surplus capital (of) about $2bn is deployable.”
Morgan Stanley analysts have repeatedly warned Macquarie’s “real surplus capital” position
was “effectively zero” due to rising capital requirements for banks globally.
Other analysts said Macquarie was leveraging its “expensive” share price to raise equity and
do acquisitions, including a $US4bn aircraft operating lease portfolio in March.

2. But Macquarie chief Nicholas Moore this week denied that the bank had raised equity to
fund Esanda and cut its first-half dividend payout ratio because of skinny capital levels.
To fund Esanda’s $7.8bn of loans, Macquarie yesterday confirmed it had raised $400m
through institutions at $80 a share after a “positive response” to the acquisition. Macquarie
shares jumped 4 per cent to $80.94 amid excitement about the group’s fresh upgrade to
first-half profits, expected to be up 55 per cent on last year’s $678m.
ANZ shares jumped 1.9 per cent to $28.46.
Macquarie will seek more cash from retail shareholders to help fund the $800m it needs to
hold against the acquired $7.8bn portfolio. The $8.23bn price tag is higher due to roughly
$200m of deferred acquisition costs, provisions and Macquarie having to revalue the loans
amid low interest rates.
The end result for ANZ will be a $100m gain on sale, while Macquarie benefits from not
having to take on goodwill, which is deductible from its closely-watched common equity tier
one ratio.
“It’s a good deal for both at the moment,” said Mr Whelan, noting Macquarie’s push into
annuity-style businesses like leasing and asset management.
Mr Johnson said ANZ had effectively sold the loan book for $823m and freed up funding
capacity. According to Credit Suisse, ANZ had $459m of capital supporting the $5.1bn of
assets after factoring in a 65 per cent “risk weighting”.
Macquarie doesn’t have that luxury and will have to risk-weight the book at 100 per cent,
hence requiring $800m of equity and a third-part debt facility to fund the deal.
But Goldman Sachs analysts said Macquarie was well placed to improve Esanda’s profits as
integration costs eased and synergies were generated from its car leasing arm, which will
become the number two player behind Westpac.