Canberra, Australia (CU)_ Westpac Banking Corp of Australia announced on Thursday that it would sell its Westpac lenders mortgage insurance (LMI) company to Arch Capital Group, making Arch Westpac sole LMI provider for the next ten years. The deal is scheduled to close by the end of August. It is the latest move in Westpac’s attempts to concentrate on its core domestic and New Zealand businesses and to simplify operations and reduce costs.
Jason Yetton, chief executive, specialist businesses and group strategy, said, “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. The sale continues the simplification of our business and builds on our progress in becoming a simpler, stronger bank focused on consumer, business and institutional banking”.
The Group’s current partnership with Arch, which has provided WLMI with reinsurance services since 2011, is strengthened by the new supply agreement. Australia’s third largest lender announced that the sale would result in a loss for Westpac. However, it is projected to add around seven basis points to its common equity tier 1 capital ratio. In the financial year 2021, Westpac will incur a loss on sale due to separation and settlement costs, as well as the $84 million goodwill write-down which was revealed in our 1Q21 Update on February 17, 2021.
Arch stated that it expects to merge Westpac LMI’s operations with its current Australian LMI business, Arch LMI Pty Ltd. If a customer fails to pay on a home loan or the funds from the selling of the property are insufficient to pay off the loan, the shortage will be covered by lender mortgage insurance for Westpac. Westpac will continue to be responsible for some legacy issues while still providing Arch with protection through a mix of standard warranties and indemnities.
