Lloyds' auction reels in Macquarie, Pepper with Westpac lurking-sources


* 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 (Reuters) - In Lloyds Banking Group's international garage sale, Pepper Australia and Macquarie Group submitted competing bids for assets that the Britishbank is offloading in Australia as the auction drew to a close.

But sector watchers expect the bids are likely to be on thelow end of Lloyds' hopes, potentially leaving the way clear fora rival offer expected from Australia's second-biggest bank,Westpac Banking Corp.

Lloyds is selling corporate loan, motor and equipmentfinancing businesses in Australia with a face value of someA$8.5 billion ($7.95 billion), people familiar with the processtold Reuters.

The sale is part of a global plan by Lloyds to cut costs andstrengthen its balance sheet as the bank shrinks itsinternational operations and refocuses on lending to Britishhouseholds and businesses.

Lloyds began its sell-off with a portfolio worth some 200billion pounds ($324 billion), and has now more than halved it.The British government is eventually expected to sell its 32.7percent share in the bank.

People familiar with the process said on Tuesday thatnon-bank lender Pepper Australia and Macquarie, the country'sbiggest investment bank, made final bids for the assets. Theoperations up for sale now have an estimated net book value ofA$1 billion, according to one person familiar with the matter.

Pepper Australia's bid highlights its ambitions, afterhaving grown rapidly through a string of acquisitions sincebeing founded in 2001 by its current executive chairman MikeCulhane, a former investment banking executive. In 2011 Pepperbought GE Capital's Australia and New Zealand mortgage lendingbusiness, housing some A$5 billion of residential mortgages.

But investment industry sources said the bids by bothPepper, which is leading a consortium that also features Bank ofAmerica Merrill Lynch, and Macquarie, are likely to be on thelow side and potentially be trumped by Westpac, Australia'ssecond-biggest bank by market capitalisation.

Westpac was a shortlisted contender ahead of the Sept. 30deadline for final bids. It declined to say if it is still inthe race, but is widely expected to have put in a bid.


Up for sale in Australia are Lloyds BOS Internationalcorporate loans business and its Capital Finance motor andequipment finance business, another person familiar with thematter said. Among the few assets Lloyds assets left inAustralia after this deal would be a branch licence.

Elsewhere this year Lloyds has made U.S. mortgage portfoliodisposals and sold its Spanish retail banking business. Lastweek it agreed to sell a portfolio of European commercial realestate loans to private equity group Cerberus for 263 millionpounds.

In Australia, Lloyds has already sold a A$371 millionportfolio of loan assets from its unit BOS InternationalAustralia to Bain Capital's Sankaty Advisors. Japan's NomuraHoldings Inc also purchased loan assets with a facevalue of around A$150 million for an undisclosed sum, sourcessaid.

If either Pepper or Macquarie wins, neither is expected toface regulatory hurdles. But Westpac could attract attention ifit were to emerge as the winner because of its size as a lenderin the Australian market, a banking source said.

For Macquarie, a deal could enhance earnings per share byusing up some surplus capital and liquidity, Brian Johnson, ananalyst at CLSA said.

"But I still don't think they would buy it unless theyperceived it to be an absolute bargain," he said.

Pepper is eyeing the Capital Finance operation, whileconsortium partner Bank of America Merrill Lynch is looking tobuy the BOS International corporate loan book, according topeople familiar with the process.

Pepper is receiving mergers and acquisitions advice fromBank of America Merrill Lynch. Goldman Sachs is advisingLloyd's on the sale.

Australia and New Zealand Banking Group Ltd wasalso previously vying for the assets, but dropped out of therace, people familiar with the process said.

Goldman Sachs wasn't immediately available to comment.

Pepper Australia, Lloyds, Westpac, Macquarie, Bank ofAmerica Merrill Lynch and ANZ declined to comment.

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