Bank’s merger with mortgage aggregator awaits board approval

Goldfields Money’s shareholders will meet in Perth on 7 September to deliberate on the bank’s planned merger with mortgage aggregator Finsure, which the bank expects will allow it to “expand its scale and improve profitability”.

On 15 January, the Kalgoorlie-based ADI, which recently received approval to label itself a bank, announced that it had signed an agreement to merge with Finsure by acquiring 100 per cent of the diluted shares in Finsure through the issue of 40.75 million fully paid ordinary shares to the aggregator’s shareholders.

This deal is based on an agreed issue price of $1.50 a share, so long as they satisfy certain conditions. The transaction is valued at $61.13 million.

According to a shareholder report published on the Australian Securities Exchange (ASX) on 6 August, Goldfields Money is also planning to raise between $15.3 million and $20 million through the placement of 10.2 million to 15.39 million shares at a per-share price of $1.30 to $1.50.

In explaining the decision, the bank said in its report: “The funds raised are intended to be used to ensure that the merged group maintains sufficient regulatory capital and to fund additional lending growth.”

Goldfields Money, which started out as a small credit union about five years ago, presented a list of reasons to vote in favour of the transaction, including the expectation that the acquisition will provide the bank with access to diversified revenue streams, including aggregation, wholesale product offerings and loan writer subscription fees.

The West Australian bank also expects to benefit from the aggregator’s presence in the east-coast markets of the nation, noting that its loan book predominantly comprises loans from the west coast of Australia.

“The Finsure transaction will allow Goldfields Money to fast-track growth by capitalising on its recently achieved banking status, and its aim of becoming a diversified financial services business by leveraging complementary services and increasing scale,” the shareholder report stated.

Lower funding costs through Finsure’s distribution channels for deposit products was also outlined as an expected benefit of the acquisition.

“Once added to the Finsure panel of lenders, Goldfields Money will have the opportunity to package its own transaction accounts as well as white label transaction accounts for Finsure’s Better Choice wholesale business products,” the shareholder report stated.

“Increasing the proportion of funding sourced from transaction accounts, which is currently the lowest cost source of funding available to Goldfields Money, will reduce the cost of funding for and improve overall profitability of the merged group.”

Joining the aggregator’s lender panel would also provide Goldfields Money with access to increased loan volumes, it said, further noting that the aggregator settles approximately $1 billion (or about 2,500) in new loans per month, which is “well in excess of those written by [the bank] historically”.

“Loans settled by Finsure are expected to be a significant distribution channel for the merged group via marketing of term deposits and transaction accounts to borrowers,” the shareholder report stated.

As of 30 June 2018, the size of the aggregator’s loan book was reportedly $33.2 billion.

Goldfields Money is also predicting that it will benefit from partly funding Finsure’s wholesale and white label products, such as MyLoan, noting that the aggregator has written $32 million in wholesale products per month in the year ending on 30 June 2018.

The update on the acquisition comes after months of regulatory criticism towards vertical integration in the financial services industry, including in banking royal commission and Productivity Commission hearings.

According to Goldfields Money’s shareholder report, its intention is to “keep the banking and non-banking activities of the merged group operationally separate”.

“Growth in lending will be carefully managed to ensure compliance with Goldfields Money’s lending policies and APRA regulatory requirements (including the separation of banking and non-banking activities,” the report stated.

The bank also recently received an offer from non-bank lender Firstmac, which already owns about 10 per cent of the Western Australian bank, to invest a further $20 million at $1.40 a share. 

The Goldfields Money board said that it “did not consider the Firstmac proposal to be in a form capable of acceptance or warranting further investigation” and the proposal lapsed on 2 August 2018.

[Related: Firstmac sells stake in regional bank]