ANZ Banking Group share price down, to sell its Esanda Dealer Finance unit

Australia and New Zealand Banking Group, Australias third-largest lender by market value, said on Monday it intends to sell its car and equipment finance business in order to cut its capital requirements.

The unit, which has $6.5 billion worth of outstanding customer loans and represents roughly half of total assets under the broader Esanda arm, may bring proceeds of about $1.57 billion. The assets expected to be sold generate annual pre-tax profit of about $170 – $190 million.

“The sale of the Esanda Dealer Finance business is part of a broader group priority to actively manage our portfolio of businesses to ensure we use capital efficiently, as well as focus on ANZ branded products,” ANZ Australia CEO Mark Whelan said for local media.

The sale includes point-of-sale finance, bailment facilities and other Esanda branded finance offered to vehicle dealers, ANZ said. Offloading the unit will allow ANZ to reduce its capital requirements, eliminating the need to raise capital in order to comply with new tough rules aimed at increasing banks relative amount of cash kept in reserve.

The deal comes shortly after GE Capitals Australian arm sold its consumer finance business in March to private equity firm KKR & Co LP and is now divesting commercial assets.

The lender said it will send sale documents to potential bidders later this month, adding that the auction will exclude the ANZ commercial broker and the commercial asset finance and direct-to-consumer asset finance businesses. Among interested parties are said to be Macquarie Group, Pepper Australia and KKR & Co, along with global auto-finance companies including Ally Bank, Spains Santander, and Japanese banks such as Mizuho, SMFG and Mitsubishi.

Shares of Australia and New Zealand Banking Group Ltd fell 2.66% on Monday in Sydney to close at AUD 33.24, marking a one-year drop of 3.20%. The lender is valued at AUD 94.46 billion. According to the Financial Times, the 17 analysts offering 12-month price targets for ANZ have a median target of AUD 36.00, with a high estimate of AUD 39.55 and a low estimate of AUD 30.60. The median estimate represents an 8.30% increase from the last price of AUD 33.24.