Westpac is selling its Lenders Mortgage Insurance Limited (WLMI) to insurance specialist Arch Capital Group (Arch) for a loss.
At the same time Westpac has entered into a 10-year exclusive supply agreement for Arch to provide Lenders Mortgage Insurance (LMI) to the Group.
The sale price will be at book value, which will be determined at completion. The transaction also includes small, fixed annual payments to Westpac over the next 10 years.
Westpac said it will take will a loss on sale in its 2020-21 year “from separation and transaction costs along with the $84 million write down in goodwill” that was announced with the bank’s December quarter update on February 17.
The transaction is expected to add approximately 7 basis points to Westpac’s Common Equity Tier 1 capital ratio.
The new supply agreement builds on the Group’s existing relationship with Arch which has provided reinsurance services to WLMI since 2011.
“Westpac is pleased to be entering into a long-term partnership with Arch as LMI is an important product that helps the Group make home ownership more accessible for more Australians,” said Westpac Group Chief Executive Specialist Businesses & Group Strategy, Jason Yetton.
“The sale continues the simplification of our business and builds on our progress in becoming a simpler, stronger bank focussed on consumer, business and institutional banking.”
Westpac will retain responsibility for certain legacy matters and provide protection to Arch through a combination of customary warranties and indemnities.
Completion of the transaction is subject to various regulatory approvals and is expected to occur by the end of August this year.
Thursday’s announcement came a day after the group revealed it would be bringing merging the leadership of its consumer and business divisions into a new Consumer and Business Banking division.
That change is effective from next Monday, March 22 and aims to consolidate divisional management and “simplify the business”.
In a separate statement, Arch said it plans to merge Westpac LMI’s operations with its existing Australian LMI company, Arch LMI Pty Ltd.
Westpac shares fell 0.9% to $24.44 – not because of this sale but because of the realisation that interest rates in the US and Australia will not be moving anytime soon – despite the upgraded US economic forecasts and the solid February jobs data in Australia.
