RAMS Home Loans Group Ltd has received independent expert approval for the fire sale of its franchise network, but its existing mortgage book remains in deep trouble.
The beleaguered non-bank lender has also revealed that its founder and chairman John Kinghorn, who made $650 million when RAMS listed earlier this year, was paid $80,000 in 2006/07.
Chief executive Greg Kolivos received a total remuneration of $625,000, which included a $200,000 cash bonus.
Westpac Banking Corporation Ltd's $140 million offer for RAMS' 92 branches, brand name, and all the future business it writes, was fair-value and in RAMS' best interests "given its current circumstances", a report by Deloitte Corporate Finance said.
As a further sweetener, Westpac on October 2 also agreed to provide RAMS with $1.5 billion to fund its existing mortgage book, which Westpac decided not to buy.
RAMS ran into trouble in August when the global liquidity freeze cut off more than $6 billion of funding that it sourced from the US extendable commercial paper (XCP) market.
Deloitte has valued RAMS' $14.6 billion loan book at between $213.7 million and $272.9 million, assuming RAMS can refinance its XCP programs.
This represents a value of between 60 and 70 cents per share.
But if RAMS can't refinance the programs, Deloitte has valued the book between $124 million and $152.6 million, representing a per share value between 35 cents and 43 cents.
RAMS shares closed one cent higher at 32.5 cents. They were offered in May at $2.50 each.
The firm confirmed that the $1.5 billion in funding from Westpac was conditional on RAMS forming a syndicate of lenders.
It also accepted it might not be able to find them by the time its XCP programs expire in February.
If it can't, RAMS said it will lose "all, or substantially all" of the economic benefit of the $6 billion plus worth of loans funded by the XCP programs.
As a double whammy, RAMS will also be obliged to pay trailing commission to brokers on those loans.
RAMS said it would be "optimistic" to believe that it could fund its loan book in residential mortgage-backed securities (RMBS) markets instead.
It also accepted that funding costs will be higher going forward, adding that XCP and RMBS market were still very hostile.
In its explanatory memorandum to shareholders, RAMS also revealed that it had tried all sort of ways to fund its mortgage book.
Market soundings for RMBS issues in the US and Europe fell on deaf ears.
Earlier this month, RAMS priced a $300 million RMBS issue in Australia, but it revealed the issue was planned at $1 billion.
RAMS also considered tendering the sale of all or parts of its business, but said such a move was "not deemed practicable in the circumstances and short time available".
Mr Kinghorn's $80,000 pay packet last financial year was the same as his pay a year prior.
Mr Kolivos was paid $570,000 in 2005/06 compared to his most recent pay packet of $625,000.
For 2006/07, RAMS booked a 49 per cent increase in net profit to $43.5 million.
RAMS shareholders will vote on Westpac's offer at the non-bank lender's annual general meeting on November 26.
Westpac, meanwhile, said it was happy with Deloitte's valuation of the franchise business of between $35.6 million to $167.5 million.
"I believe Westpac is well positioned to deliver a positive future for RAMS franchisees and employees," chief executive David Morgan said.
Source:AAP 2007
Sunday, October 28, 2007
Tuesday, October 23, 2007
Analysts say any interest rate rise would stifle a much-needed recovery in housing investment
All eyes will be on the Consumer Price Index (CPI) for the September quarter.
Any inflation spike could force the Reserve Bank of Australia's hand when the Board meets on Melbourne Cup day.
Meanwhile, the housing shortage brought on by a surge in migration is being cited as a major contributor to the official inflation result.
Economic forecaster BIS Shrapnel says any interest rate rise would stifle a much-needed recovery in housing investment.
BIS Shrapnel economist Jason Anderson says clearly not enough is being produced in terms of the rate of dwelling construction.
"There is a need now to articulate how governments are going to respond to an environment really which has changed very quickly in terms of that overseas migration and the population gain," he said.
"But it's now becoming much more important in terms of the outlook for inflation and we can't set aside yet as the temporary phenomenon.
"This is an issue that will be with us into the next couple of years at least."
Rental shortage
He says the rental shortage will continue to attract a lot more attention in the determination of the inflation number for some time.
"The real problem then is that any policy action to remedy or try and address the imbalance between supply and demand, will take quite sometime to come through, and in the meantime, there will certainly be an acceleration in rentals," he said.
"With that in mind, it's a difficult balancing act, I think, for the Reserve Bank, because it's contributing to acceleration in consumer prices, but on the other hand, any policy action will probably dampen still, the rate of dwelling construction and that of course then has feedbacks in terms of extending the imbalance between supply and demand."
He says depending on Wednesday's CPI result, the Reserve Bank decision is going to be very evenly balanced.
"I think there is a need to look at, obviously, the wider context in terms of consumer spending," he said.
"We have seen a reacceleration in terms of how spending growth.
"The housing market conditions, with the exception of Sydney, seem to have had life, new life breathed into them over the last six months and that would indicate that the impact of the rate rises that we had last year, obviously the evidence is yet to come through in terms of the August rise, have not been that substantial.
"So also when you add to that, the fact that the employment growth figures remain solid means that it's going to be quite a difficult decision."
Any inflation spike could force the Reserve Bank of Australia's hand when the Board meets on Melbourne Cup day.
Meanwhile, the housing shortage brought on by a surge in migration is being cited as a major contributor to the official inflation result.
Economic forecaster BIS Shrapnel says any interest rate rise would stifle a much-needed recovery in housing investment.
BIS Shrapnel economist Jason Anderson says clearly not enough is being produced in terms of the rate of dwelling construction.
"There is a need now to articulate how governments are going to respond to an environment really which has changed very quickly in terms of that overseas migration and the population gain," he said.
"But it's now becoming much more important in terms of the outlook for inflation and we can't set aside yet as the temporary phenomenon.
"This is an issue that will be with us into the next couple of years at least."
Rental shortage
He says the rental shortage will continue to attract a lot more attention in the determination of the inflation number for some time.
"The real problem then is that any policy action to remedy or try and address the imbalance between supply and demand, will take quite sometime to come through, and in the meantime, there will certainly be an acceleration in rentals," he said.
"With that in mind, it's a difficult balancing act, I think, for the Reserve Bank, because it's contributing to acceleration in consumer prices, but on the other hand, any policy action will probably dampen still, the rate of dwelling construction and that of course then has feedbacks in terms of extending the imbalance between supply and demand."
He says depending on Wednesday's CPI result, the Reserve Bank decision is going to be very evenly balanced.
"I think there is a need to look at, obviously, the wider context in terms of consumer spending," he said.
"We have seen a reacceleration in terms of how spending growth.
"The housing market conditions, with the exception of Sydney, seem to have had life, new life breathed into them over the last six months and that would indicate that the impact of the rate rises that we had last year, obviously the evidence is yet to come through in terms of the August rise, have not been that substantial.
"So also when you add to that, the fact that the employment growth figures remain solid means that it's going to be quite a difficult decision."
Thursday, October 18, 2007
Mortgage credit fears bite in Queensland
Queensland real estate market changed personality last month, as buying a home becomes a more frightening issue for many Queenslanders.
That has led to an almost 21 per cent slump in the number of mortgages issued by Australian Finance Group, which holds about 13 per cent of the market.
It was the biggest slump so far recorded by AFG at a time when the market should be picking up.
Property analyst Michael Matusik now believes investors are the cause but he also believes share houses are about to get a lot more cramped as rents rise and people look to reduce the financial burden by bringing in boarders.
But he also thinks the capital gains of 15 per cent a year in some parts of Brisbane are at an end with probably half that expected for the present year.
Rising interest rates combined with the fallout from the US housing market and bad credit is creating nervousness, and with affordability already at historic lows it doesn't take much to change minds.
"We will see stop-start growth over the next 12 to 18 months as the world tries to figure out how it's going to cope with credit," Mr Matusik said.
He said investors were now finding it tough to get loans for 100 per cent or more of a property's value and that could mean dipping into their own pockets for things like stamp duty. Statistics also showed that many rental homes had one or more spare bedrooms and that was going to end.
"In the next 12 months renters will be forced to share. Spare rooms will disappear and then we will see another kick in the housing market," he said.
AFG's Mark Hewitt said fixed loans had also increased from 18 per cent in August to 20 per cent last month. He said last month's decline in mortgage sales was about double the normal September slump as concerns persisted over the global debt markets and the US subprime difficulties.
"On the positive side, we believe that the underlying market is very strong and these figures represent a blip rather than a change in direction," he said.
He added that this month had shown early indications of a small recovery.
In Queensland the average mortgage has gone up by 12 per cent in the past nine months to $318,000.Source: Courier Mail
That has led to an almost 21 per cent slump in the number of mortgages issued by Australian Finance Group, which holds about 13 per cent of the market.
It was the biggest slump so far recorded by AFG at a time when the market should be picking up.
Property analyst Michael Matusik now believes investors are the cause but he also believes share houses are about to get a lot more cramped as rents rise and people look to reduce the financial burden by bringing in boarders.
But he also thinks the capital gains of 15 per cent a year in some parts of Brisbane are at an end with probably half that expected for the present year.
Rising interest rates combined with the fallout from the US housing market and bad credit is creating nervousness, and with affordability already at historic lows it doesn't take much to change minds.
"We will see stop-start growth over the next 12 to 18 months as the world tries to figure out how it's going to cope with credit," Mr Matusik said.
He said investors were now finding it tough to get loans for 100 per cent or more of a property's value and that could mean dipping into their own pockets for things like stamp duty. Statistics also showed that many rental homes had one or more spare bedrooms and that was going to end.
"In the next 12 months renters will be forced to share. Spare rooms will disappear and then we will see another kick in the housing market," he said.
AFG's Mark Hewitt said fixed loans had also increased from 18 per cent in August to 20 per cent last month. He said last month's decline in mortgage sales was about double the normal September slump as concerns persisted over the global debt markets and the US subprime difficulties.
"On the positive side, we believe that the underlying market is very strong and these figures represent a blip rather than a change in direction," he said.
He added that this month had shown early indications of a small recovery.
In Queensland the average mortgage has gone up by 12 per cent in the past nine months to $318,000.Source: Courier Mail
Wednesday, October 10, 2007
Mortgage Lenders to go easy on borrowers in difficulty
TheMortgage and Finance Association of Australia (MFAA) has introduced measures to encourage non-bank lenders, mortgage managers and brokers to assist borrowers in financial difficulty.
Under the new provisions, MFAA members can consider varying the terms of a loan repayment once they are aware that the borrower is having trouble meeting repayments.
Also, members can suspend action under the credit facility to recover due payments, and, if a default has not been listed already, the member can choose not to list a default against the borrower until the matter is decided.
MFAA also has urged its 13,000 members to consider encouraging borrowers to make payments they can afford.
"Essentially, our members must now consider whether it is appropriate to vary the terms of repayment on a loan once they are aware a borrower is in financial difficulty," MFAA chief executive Phil Naylor said.
Mr Naylor said about 55 per cent of all mortgages are written by non-banks, mortgage managers and mortgage brokers and it is appropriate that they assist borrowers who are in financial difficulty.
"It is crucial, however, that borrowers who are in some financial difficulty, to advise their lender or broker immediately to ensure the best result can be achieved," he said.
MFAA said that, under the credit facility, members must not require the borrower to apply for early release of their superannuation entitlements or to obtain funds from family, friends or other third parties, prior to the member considering whether to vary the payment terms. Source: AAP
Under the new provisions, MFAA members can consider varying the terms of a loan repayment once they are aware that the borrower is having trouble meeting repayments.
Also, members can suspend action under the credit facility to recover due payments, and, if a default has not been listed already, the member can choose not to list a default against the borrower until the matter is decided.
MFAA also has urged its 13,000 members to consider encouraging borrowers to make payments they can afford.
"Essentially, our members must now consider whether it is appropriate to vary the terms of repayment on a loan once they are aware a borrower is in financial difficulty," MFAA chief executive Phil Naylor said.
Mr Naylor said about 55 per cent of all mortgages are written by non-banks, mortgage managers and mortgage brokers and it is appropriate that they assist borrowers who are in financial difficulty.
"It is crucial, however, that borrowers who are in some financial difficulty, to advise their lender or broker immediately to ensure the best result can be achieved," he said.
MFAA said that, under the credit facility, members must not require the borrower to apply for early release of their superannuation entitlements or to obtain funds from family, friends or other third parties, prior to the member considering whether to vary the payment terms. Source: AAP
Rogue mortgage broker found guilty of unconscionable conduct
A mortgage broker has been found guilty of unconscionable conduct for writing loans a borrower was unable to repay, in a landmark decision expected to have far-reaching implications for the broking industry.
Federal Court judge Roger Gyles found Canberra mortgage broker Kelvin Skeers had engaged in "misleading and deceptive conduct" in writing a $360,000 low-documentation home loan for a 20-year-old man who was unemployed, dyslexic and homeless.
It is the first time a mortgage broker has been found guilty of unconscionable conduct for writing unjust loans, and the precedent could leave thousands of mortgage brokers open to action by the corporate regulator and state fair trading bodies.
According to a study by Fujitsu Home Loans released last month, 40,000 Australian households had been stung by "predatory lending" practices.
Those practices ranged from brokers lending to borrowers who were unable to repay loans, to brokers charging excessively high loan financing costs.
Yesterday's ruling follows a decision last week where Mr Skeers' employer Tonadale - trading as ACT Mortgages - was forced to pay $31,000 in compensation to the borrower.
The Australian Securities and Investments Commission is understood to be now pursuing criminal action against Mr Skeers. In yesterday's case, ASIC alleged Mr Skeers had misrepresented the borrower's financial position and misrepresented to the borrower what would be included in those loan application forms.
"This case highlights that unscrupulous conduct in the mortgage industry is not acceptable and that mortgage brokers can be held responsible," ASIC executive director of enforcement Jan Redfern said.
The unemployed borrower had inherited $240,000 and approached ACT Mortgages twice to borrow additional money to buy a home.
Mr Skeers arranged an initial loan for $360,000 and later a second refinancing loan for $400,000. Justice Gyles said the borrower was unable to repay either loan at the time.
Source: AAP
Federal Court judge Roger Gyles found Canberra mortgage broker Kelvin Skeers had engaged in "misleading and deceptive conduct" in writing a $360,000 low-documentation home loan for a 20-year-old man who was unemployed, dyslexic and homeless.
It is the first time a mortgage broker has been found guilty of unconscionable conduct for writing unjust loans, and the precedent could leave thousands of mortgage brokers open to action by the corporate regulator and state fair trading bodies.
According to a study by Fujitsu Home Loans released last month, 40,000 Australian households had been stung by "predatory lending" practices.
Those practices ranged from brokers lending to borrowers who were unable to repay loans, to brokers charging excessively high loan financing costs.
Yesterday's ruling follows a decision last week where Mr Skeers' employer Tonadale - trading as ACT Mortgages - was forced to pay $31,000 in compensation to the borrower.
The Australian Securities and Investments Commission is understood to be now pursuing criminal action against Mr Skeers. In yesterday's case, ASIC alleged Mr Skeers had misrepresented the borrower's financial position and misrepresented to the borrower what would be included in those loan application forms.
"This case highlights that unscrupulous conduct in the mortgage industry is not acceptable and that mortgage brokers can be held responsible," ASIC executive director of enforcement Jan Redfern said.
The unemployed borrower had inherited $240,000 and approached ACT Mortgages twice to borrow additional money to buy a home.
Mr Skeers arranged an initial loan for $360,000 and later a second refinancing loan for $400,000. Justice Gyles said the borrower was unable to repay either loan at the time.
Source: AAP
Monday, October 08, 2007
Westpac Bank throws RAMS a lifeline
Westpac has bought the RAMS brand and franchise network of 92 stores around the country for $140 million - a fraction of what RAMS was worth when the company listed two months ago.
RAMS' share price crashed a month ago when the company revealed the United States credit squeeze was posing funding problems for some of its loans.
Analysts say while the deal would not be the first option for RAMS, it shows Westpac is confident of riding through the credit market crisis.
Good deal
The past two months for RAMS Home Loans have been disastrous.
Just three weeks after listing on the Australian Stock Exchange, its $2.50 share price had crashed to 55 cents.
The company revealed the United States credit squeeze was creating funding problems for $6 billion worth of its home loans.
But today RAMS has received a lifeline. Westpac chief executive David Morgan announced his company has bought the RAMS brand and its shop fronts and agreed to provide up to $2 billion to help the company's funding problems.
"I'm delighted to announce a significant transaction for Westpac, a transaction that expands our distribution reach and provides us with a new growth path," he said.
"On growth, we plan to introduce a broader range of products to complement the RAMS mortgage offering.
"This will initially include a broader set of mortgage products and items such as credit cards, personal loans and general insurance."
RAMS has 92 stores around the country, where customers can go in and purchase a home loan.
The brand is well recognised and the stores are in prime locations in both regional areas and capital cities. This is what a number of banks have been eying off for the past few weeks.
For $140 million, independent banking analyst William Ammentorp says it is a good deal.
"So the big thing is that branch network. A lot of the RAMS franchisees are small businesses operating in local communities," he said.
"They've been providing mortgages and getting people houses for a number of years.
"They pick up those shopfronts and it allows Westpac to perhaps sell Westpac product through those RAMS distribution outlets, but also the opportunity to have yet another outlet to sell through."
"I think Westpac commented it was a 10 per cent uplift in their branch network when this transaction settles."
Solid sector
Mr Ammentorp also says the deal could be a sign Australia has seen the worst of global credit market crisis.
"The larger organisations are doing very well," he said.
"They are very well-capitalised, very well-run, and in times like this it shows just the strength of the Australian banking sector.
"That's not to say there couldn't be difficulties. Northern Rock, the lines around Northern Rock with people withdrawing funds had absolutely no rational basis yet it happened.
"So I'm not suggesting it could happen here, but you never know what can happen in a marketplace.
"But certainly the Australian banking sector and Australian financial services are renowned around the world for being solid and very, very well-run."
The sale is now subject to shareholder approval and is expected to be finalised by January next year.Source: ABC
RAMS' share price crashed a month ago when the company revealed the United States credit squeeze was posing funding problems for some of its loans.
Analysts say while the deal would not be the first option for RAMS, it shows Westpac is confident of riding through the credit market crisis.
Good deal
The past two months for RAMS Home Loans have been disastrous.
Just three weeks after listing on the Australian Stock Exchange, its $2.50 share price had crashed to 55 cents.
The company revealed the United States credit squeeze was creating funding problems for $6 billion worth of its home loans.
But today RAMS has received a lifeline. Westpac chief executive David Morgan announced his company has bought the RAMS brand and its shop fronts and agreed to provide up to $2 billion to help the company's funding problems.
"I'm delighted to announce a significant transaction for Westpac, a transaction that expands our distribution reach and provides us with a new growth path," he said.
"On growth, we plan to introduce a broader range of products to complement the RAMS mortgage offering.
"This will initially include a broader set of mortgage products and items such as credit cards, personal loans and general insurance."
RAMS has 92 stores around the country, where customers can go in and purchase a home loan.
The brand is well recognised and the stores are in prime locations in both regional areas and capital cities. This is what a number of banks have been eying off for the past few weeks.
For $140 million, independent banking analyst William Ammentorp says it is a good deal.
"So the big thing is that branch network. A lot of the RAMS franchisees are small businesses operating in local communities," he said.
"They've been providing mortgages and getting people houses for a number of years.
"They pick up those shopfronts and it allows Westpac to perhaps sell Westpac product through those RAMS distribution outlets, but also the opportunity to have yet another outlet to sell through."
"I think Westpac commented it was a 10 per cent uplift in their branch network when this transaction settles."
Solid sector
Mr Ammentorp also says the deal could be a sign Australia has seen the worst of global credit market crisis.
"The larger organisations are doing very well," he said.
"They are very well-capitalised, very well-run, and in times like this it shows just the strength of the Australian banking sector.
"That's not to say there couldn't be difficulties. Northern Rock, the lines around Northern Rock with people withdrawing funds had absolutely no rational basis yet it happened.
"So I'm not suggesting it could happen here, but you never know what can happen in a marketplace.
"But certainly the Australian banking sector and Australian financial services are renowned around the world for being solid and very, very well-run."
The sale is now subject to shareholder approval and is expected to be finalised by January next year.Source: ABC
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