Global player sees 77% surge in local mortgage settlements

Pepper Group says its Australian residential mortgage settlement volumes for the first six months of 2016 are $1.2 billion, up 77 per cent on the equivalent 6-month period in 2015.

In a trading update yesterday, the lender reported assets under management (AUM) of $53 billion, up 44 per cent on the prior corresponding period and up 16.5 per cent on calendar year 2015, and a total income of $193.9 million, up 46.2 per cent. The group also reported a fully franked interim dividend of 3 cents per share payable on 5 October.

Pepper Group’s total loan originations for the first six months of 2016 is $2.2 billion, up 80 per cent on the prior corresponding period.

Co-CEO Patrick Tuttle pointed to Pepper’s completion of some significant RMBS deals during the first half of the year.

“Since the announcement of results in February, Pepper has completed the PRS16 transaction, a $700 million non-conforming RMBS deal which we successfully priced in March. We’ve also conducted a further $800 million of privately placed whole loan transactions, in two tranches of $400 million since March, thereby freeing up additional warehouse funding capacity to support our forecast second half new business growth,” Mr Tuttle said.

“We anticipate completing one-third of non-conforming RMBS transaction, PRS17, to be sized at approximately $600 million during October 2016.”

Mr Tuttle said the “material increase” in Pepper’s year-on-year mortgage origination volumes is largely underpinned by the group’s “highly diversified distribution strategy”, with a primary focus on large national networks of retail mortgage brokers in addition to its white label partners and an emerging direct-to-consumer marketing channel.

Co-CEO Mike Culhane also attributed the group’s significant growth to its Korean savings bank and Spanish point of sales finance business, and highlighted that both international and Australia-New Zealand income streams are growing at equally fast rates.

“As we announced on 29 July, we have signed a deal with a Banco Popular headquartered in Madrid, Spain. The deal has three components including the merger of our Spanish business that specialises in point of sale and personal loans with a business partner of Banco Popular,” Mr Culhane said.

“Ownership of the combined business will be split 50/50 between Banco Popular and Pepper.

“The combined business will have first look access to Banco Popular’s 1,600 branches, two million customers for the purposes of selling personal loans and will be the fifth largest business of its type in Spain.”

Meanwhile, Mr Tuttle said that subject to market conditions, Pepper is targeting an adjusted impact of at least $59 million in 2016, an increase of 21 per cent from the $48.6 million adjusted impact recorded for 2015.

“The growth will come from across the business, remembering that the geographic and profit line diversity of Pepper allows for earnings to be delivered through multiple operating platforms,” he said.

“[We have] deliberate methodical investments into new business lines and we remain highly confident that these investments will generate strong returns in 2016 and beyond.”

“We are projecting substantially above system growth in the Australian mortgage originations.”

[Related: Pepper sells $400m of home loans]