However, whereas under the ESANDA deal Macquarie bought the whole dealer floor plan and retail loans business, the purchase of the St George business by Angle Finance is more of a hybrid.
Bernie Campbell, the chairman of Angle Finance, which has done the deal with Westpac, told GoAutoNews Premium in an exclusive interview: “It’s more complicated because they’re not selling the business in its entirety.”
Angle Finance is part of Cerberus Capital Management, which has paid what is estimated to be $200 million in goodwill to take over St George’s $1 billion auto finance floor plan funding business.
Cerberus globally has the same equity base as Westpac. The US-based private equity fund invests largely in non-bank financial institutions and real estate and is looking to expand in Australia.
Under the Angle Finance deal, Angle gets 100 dealer owners with 1200 dealership rooftops that utilise St George wholesale floor plan and business capital funding. Most of these dealers also sell retail finance paper for St George. In the latest year that retail business activity generated around $4 billion in loans.
Other dealers sell St George retail only, with another financier doing their floor plan. A significant part of the business is with the salary packaging introducers who do novated leasing.
But, under the deal, the current book of $10 billion in retail auto loans that have been sold by dealers under the St George brand, or the Bank of Melbourne brand in Victoria, do not go across to Angle Finance.
These loans will stay with Westpac, which will progressively exit the auto finance business as each loan reaches its full term and expires.
And, during the transition period, in which dealers will be encouraged to agree to transfer their business across from St George to Angle Finance, Westpac will continue to provide support to the dealers right through the transition. Once a dealer has signed on and is installed into Angle Finance’s system, any retail loans they sell from then on will reside in Angle Finance’s loan book, which will build over time.
Mr Campbell said: “What Westpac is not selling is the back book of retail customers and they’re not selling the IT system.”
Mr Campbell, who began in consumer credit as a credit acceptance officer for Barclays Finance in 1979, which later became St George Motor Finance, said: “Angle is getting a billion dollars in wholesale funding and capital loans, which is the key to the franchise dealer business.
“So all of the wholesale facilities move across and then those dealers will continue to support us going forward with all the retail paper they write, unless they choose to go somewhere else.”
Under the arrangement, 200 people will move across from St George to join another 200 who will come from Angle or be freshly recruited over the coming months.
“We are basically getting the people who operate the business. They are transitioning across to our business and they are the basis of our business. All the St George relationship managers, the wholesale team, credit and settlements; they’re the ones interfacing with the customers and there are the ones who know and understand the dealer’s business – and they’re coming across.
“So we’ve got people in there now; all the specialists you need in data analytics, finance and treasury but we’re going to supplement them with people as we scale up.
“As a strong, independent business, we are going into the market to get auto finance professionals, to build out the team. There’s probably another 200 we’re going to need as we build up the backbone and, at this stage, we plan to do most of that onshore rather than offshore.”
Mr Campbell said that Cerberus began talks with Westpac about the auto loans business last year when Cerberus bought an equipment finance business called Strategic Alliances from Westpac.
“We were looking to do other things and had a great relationship with Westpac and had an ongoing conversation with them. Westpac have talked about the auto loans business for a long time as being non-core to them and they were looking to exit a number of businesses including this one.
“We became involved in that discussion. So for us it was a great opportunity because in our view it’s a cracking business.”
Mr Campbell said that not taking on the Westpac IT loans system was “a blessing in disguise”.
“We are using a global IT system we implemented for another business we have in the car finance area.
Bernie Campbell
“Westpac have had theirs for a really long time. Its greatest strength was that it is reliable but has reached the point where it probably needed investment in a completely new system.
“It would have been expedient for us to get their system but when we negotiated purchase of the asset finance business 18 months ago with Westpac, we contracted a new state-of-the-art global system provider.”
Angle Finance has installed a specialist asset financing system called Ambit.
“So we already have that system. We already use it for cars in our equipment finance business. We’re just extending it out for consumer finance, wholesale funding and all that goes with that.
“It has a lot of users globally. It is robust, it is cloud-based, you can do high volumes on it and it is fantastic in terms of the functionality. It has the robustness and reliability you need for a big business. In fact, in other parts of the world they run businesses three times the size of what we’re going to be running.
“More importantly, it means we can plug in and start investing in a lot of other capabilities that we think are critical to working with the dealers going forward.”
Mr Campbell said the company has a six-month plan to have migrated all dealers across by the end of the year.
A team of 100 people from Accenture has been brought on board “to make sure we are, if anything, over-resourced to manage the transition”.
“We’ll have a couple of months where we will be talking with the dealers showing them what we are doing, how we are building up the capability and getting their input in terms of what they want the system to do, not just on day one, but what else we should be doing with it down the track.
“And then we need probably another couple of months to actually showcase the system to the dealers and to train them up on it. On top of that, we have a SWAT squad of super users and trainers who can sit beside the dealer or they can deal with them on Zoom or by phone to support the move across.
“These modern systems are pretty easy to get a handle on and the business managers already deal with four or five different systems, so a new more modern one is probably not going to be a problem for them.
“We’re working towards moving everyone over progressively through November and December.
“The first pilot group, who have said they want to be a part of the pilot to test the system and want to be on early, will be late October, early November. And then we tune the system and the process up, as a result of their experience and then progressively move everyone across in late November, early December.
“Westpac has been very good. They have already said to their dealers that they know they are messing with their businesses and will support them all the way through. They will continue to support dealers right up until they move across.”
Mr Campbell said that a lot of dealers have “asked if Angle can move faster with the transfer, but we need to work with everyone to make sure we do it properly”.
“However, what the dealers really want us to do, is unwind a lot of the additional risk settings and processes that banks have had to impose that their non-bank competitors don’t. We will bring in our own technology, processes and risk policies. The dealers don’t get that sort of friction from the captives and we can improve this business along the same lines.
“So the dealers are saying the sooner we do that, the better.”
Mr Campbell said that APRA capital requirements were driving banks to consider divesting the businesses where they have to carry too much capital.
“We are not under all of the constraints as the big banks. Our regulator is ASIC, not APRA. The banks are governed by APRA because they are deposit takers and we are not. We are based on equity and we have a queue of banks both local and international to provide the funding for us so we are not subject to the capital constraints that they are.
“Our pitch to the dealers is: if you want a large, independent car financier that is not aligned to a bank and not aligned to a manufacturer and therefore subject to whatever that manufacturer wants; but 100 per cent aligned to a dealer, then we are it.
“The other thing that I think will be important, and that the people in the business are looking forward to, is when the dealers come across to us we will be empowering them because they run the business and we know what they need to do to help dealers.
“The people in this business will be more empowered in terms of decision making. In our business, whether you’re the CEO or in collections or in treasury or on the front line, we all live and die by the success of our business and the relationship with a dealer.
“We can take our relationships back to the days when dealers really enjoyed access to decision-makers. Whoever had the power to make a decision, they could ring them up and we just made a call on it,” Mr Campbell said.
“This approach to a partnership with dealers has been reinforced by all of the retailers we have spoken to this last week.”
By John Mellor
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