Major mortgage deal puts non-ADIs on par with banks

A proposed merger between two of of the country's largest non-banks would result in a combined loan book worth more than some Australian banks.

Homeloans Limited yesterday informed the market of its plans to merge with securitisation pioneer and leading non-bank lender RESIMAC in a deal that would create a significant mortgage lender with a combined portfolio in excess of $13 billion.

If successful the deal will put the group’s mortgage book on par with challenger bank ME ($14.3 billion) and well above AMP Bank ($10.5 billion), Citi ($7.4 billion) and HSBC ($9.8 billion).

Speaking to Mortgage Business, Homeloans CEO Scott McWilliam said it was “business as usual” for the ASX-listed group.

“The Homeloans brand is an important part of the merged group. It is very much the street brand and the broker brand. So there will be no change there,” he said. “Assuming this goes through, there will be a change of control. But it doesn’t change things for our borrowers, brokers or business partners.”

Mr McWilliam said the value proposition of non-banks today is stronger than it has been in a long time.

“We wouldn’t be doing this transaction if we didn’t have a strong view on the outlook for the non-bank sector. We have spent a lot of time in the last couple of years growing the distribution side and growing relationships with our broker partners, aggregators and mix of wholesale funders. We get to compliment that now with a well-invested, mature and well-regarded funding program that has product manufacturing capabilities as well. That is why we are coming together — to get better value out of each other.”

Originally created as Fanmac by the NSW government in the mid-eighties, RESIMAC was the first issuer of residential mortgage backed securities (RMBS) in 1988.

In 2011 the group acquired a 50 per cent stake mortgage aggregator Finsure and a 90 per cent stake in non-bank lender State Custodians.

In 2014 RESIMAC acquired RHG Mortgages and last year celebrated 30 years in business. The group is controlled by Bermuda-based fund manager Duncan Saville via his primary investment vehicle, Ingot Capital Management. Following yesterday’s announcement, ASX records show that Saville became a substantial shareholder in Homeloans, acquiring 19.9 per cent voting power.

RESIMAC's strong track record of high performing RMBS deals has seen it survive periods of stress and volatility, such as the global financial crises, which saw many non-banks exit the market.

The merger of two of the industry’s most prominent non-bank lenders comes after Firstmac last month appointed Goldman Sachs to help the Queensland-based lender secure a new funding partner.

Pressure on margins has driven significant consolidation of the non-ADI space in recent years. Deloitte financial services partner James Hickey believes today’s non-bank lenders need to be active, regular participants in the funding market just to stay afloat.

“You need to have a relatively large origination program to continue operating as a non-bank lender going forward. You need to do about $500 million of RMBS issuances per annum to stay relevant,” he said.

Mr Hickey says Australian non-bank lenders such as RESIMAC are well-regarded by offshore investors.

“There is always keen appetite for Australian paper when it goes over there. Particularly if you have been a non-bank lender with a track record of strong performance in your deals, such as RESIMAC and Pepper,” he said.

“They have a long track record of issuing both domestically and offshore. The performance of all of their deals have been very good.”

[Related: Mortgage managers 'crunched' in new lending landscape]

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