Analysis: Hard lessons for Westpac

The Capital Finance business is one of the great entrepreneurial success stories of Australia's finance sector.

Founded by the Bank of Scotland in the mid-1990s (when it acquired a small book from KE Financial), Capital chased business mainly from smaller, often privately owned vehicle dealers the banks were reluctant to support.

BoS paid KE Financial $14 million in 1995 for a business that Lloyds is now selling to Westpac for $1.45 billion.
 
Capital's asset base rivals that of GE Capital (the long-time leader in the sector) and now Macquarie Bank (which has rolled up vendor finance companies that struggled during the GFC).

One challenge for Westpac is to maintain the Capital culture and prevent it being subsumed by the more bureaucratic demands of a larger organisation (in the manner that St George has faltered over the last five years.)

Such demands could easily stifle the speedy lending decisions that are said to be one of the hallmarks of Capital's business model.

Capital developed a strong brand in its target market, and, according to insiders, has developed a customer focused, can do, results-driven culture.

This delivered a return on equity in excess of 20 per cent.

For the time being Westpac plans to keep Capital's management team, led by its managing director, Bernie Campbell, who was with the business when it started life in 1995. Campbell replaced the dynamic (and now retired) Derek Taylor as MD in 2008.

And the standard pitch on cross-selling now may not merely see Westpac's products being pushed at Capital customers but could warrant being the other way around.

Another issue for Westpac is to reflect on the (almost comic) rationale for the sale of AGC to GE 11 years ago.

At the time, Westpac's management claimed that a finance company and an equipment leasing business were just too hard to manage, as they had too many distractions from wrangles over compliance.

Has Westpac learned any lessons? We'll see.