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Bendigo Bank to focus on high-margin farming loans after Rural Finance acquisition

Bendigo Bank has outlined a new settlement offer to borrowers who invested in the failed Timbercorp. Bendigo Bank has outlined a new settlement offer to borrowers who invested in the failed Timbercorp.
Bendigo and Adelaide Bank outlined its strategy of targeting higher-margin farming loans on Monday with its acquisition of Victoria's Rural Finance for $1.78 billion, as the state government fended off criticism for not conducting a formal auction.

The agreed transaction came as a surprise to some large local banks, but Bendigo chief Mike Hirst told Fairfax Media that Rural Finance had a prominent spot on his radar since he took the reins in 2009.

''We are looking forward to the opportunity to grow that business … [the acquisition] ticks a lot of boxes,'' he said. Bendigo had planned to increase its presence in agribusiness in Victoria organically, but saw the acquisition as a more attractive opportunity as it could combine the purchase with its own Rural Bank.

''We were underweight in Victoria and this will go some way to balancing that exposure for the group.''

Rural Finance - which has a 70-year history - has 115 employees and 3300 customers across farm lending areas including cropping, sheep and dairy.

Bendigo did not use an investment bank on the slated acquisition, which requires regulatory approval.

The Victorian government and its adviser, JPMorgan, came under fire on Monday as questions were raised about why a sale was not pursued to garner the highest price.

Victorian Treasurer Michael O'Brien justified not putting the asset to the market, citing advice from JPMorgan. ''The view of that independent advice was that given the nature of [Rural Finance's] business there were some risks if we were to go out to the market broadly and publicly,'' he said.

''The concern was there could be cherry-picking of RFC clients. We also went to this proposal with the idea about getting a strong financial return but also we wanted to make sure there was a continuity of service. The advice we received from JPMorgan was that the better way to go about investment was through private treaty. We went through private treaty in the end, it was the best fit.''

Mr O'Brien said the government, which will clear $400 million from the sale, had a ''very clear'' price range it wanted. ''If we were not able to achieve a very fair price for what is a very good business we would have moved to potentially others in the end.''

But shadow treasurer Tim Pallas said he was concerned that in the government's haste to secure funding it had neglected to ask even the most basic questions of JPMorgan. ''Labor will have a close look at this sale, but have concerns about the process of selling an asset before it went out to tender,'' he said.

One condition of the sale to Bendigo was that non-executive employees would keep their jobs for at least three years. Mr O'Brien said the sale was part of the state's asset recycling program, which also includes the long-term lease of the Port of Melbourne.

The proceeds will be used to pay for rural infrastructure projects such as the $200 million standardisation of a rail line from Geelong to Mildura.

Author : Joyce Moullakis
Source : The Age

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