THE PROPOSED TAKEOVER by Nedbank of Imperial Bank will significantly bolster the banking group’s asset finance division, particularly its vehicle finance operation – currently the sector laggard. The merger of Nedbank vehicle finance and Imperial’s Motor Finance Corporation (MFC) will give the enlarged division a combined book of around R40bn. That’s small compared to competitors WesBank’s and Absa Vehicle and Asset Finance, which have about R100bn and R70bn on their respective books.
However, a large proportion of the assets funded by the larger firms are in the commercial sector, whereas the MFC/ Nedbank tie-up will give it significant scale in retail vehicle dealerships. “It will make them very competitive in the retail vehicle market,” says Marcel de Klerk, managing executive at Absa Vehicle and Asset Finance. That space is currently dominated by WesBank, which is likely to retain its number one spot. Industry players are keen to see the full impact of MFC’s merger with Nedbank and the likely industry shake-up that must follow.
Insiders suggest the better-known MFC brand will remain in dealerships to provide continuity to retail consumers, while Nedbank branches will keep bank branding for its clients. It’s likely there will also be operational synergies from the deal as well as some technological advantages. MFC is renowned in the industry for its customer-facing IT platform while Nedbank’s back-end systems are regarded as being more robust.
While the vehicle finance operations are to be merged, Finweek understands the three wholesale divisions of Imperial Bank – Supplier Asset Finance (including big “yellow” machinery, trucking, aviation, office automation), Property Finance (commercial property and residential development) and Professional Finance (mainly medical practitioners) – will be retained as a single 100% owned asset finance business within Nedbank and won’t be broken up and absorbed into various bank divisions. The various entities operate in niche markets and have various specialisations requiring staff with specific skills.
In its heyday Imperial Bank funded many executive jet buys but burnt its fingers rather badly in the aviation business and turned its attention to property and vehicles. Neither of those industries is currently performing spectacularly. The property sector remains under pressure, and Naamsa’s new vehicle sales showed continued year-on-year weakness.
But Nedbank financial director and incoming CEO Mike Brown doesn’t appear concerned by the timing of the deal. If anything, it may give him some leverage on price, which is yet to be finalised. It appears likely at this stage a deal will include a cash and equity component.
“Talks are progressing well,” says Brown. “The deal helps further simplify our structure and allows Imperial Bank clients access to a wider product range.”
When finalized, the deal will be presented to the boards of Nedbank and Imperial, probably in mid-June, after which regulatory approvals will be sought. It’s unlikely the transaction will face any opposition from Registrar of Banks Errol Kruger, who’s well known for his aversion to joint ventures, concerned that there aren’t usually defined lines of responsibility.
Has leverage. Mike Brown