Bouris’ YBR loses Macquarie, gains Brierley and keeps Ganis

On 22 May, Yellow Brick Road revealed in a disclosure to the Australian Securities Exchange (ASX) that Macquarie Group had sold more than 4 million shares, dropping its holding from 6.6 per cent to 5.15 per cent. The banking group now owns a little over 14.5 million shares.

Macquarie began offloading its stake in YBR in April, prior to which it owned more than 51 million shares. On 24 April, the banking group decreased its stake from 18.4 per cent to 7.8 per cent; then on 15 May, its holding dropped further to 6.6 per cent. 

The equity reduction comes despite YBR turning around years of significant losses into profits. In FY17, it posted a net profit after tax of $1 million, up from a loss of $9.5 million in FY16.

Yellow Brick Road’s underlying EBITDA increased from negative $3.9 million in FY16 to $5.2 million in FY17; and the value of its underlying loan book grew from $37.8 billion in FY16 to $44.1 billion in the last financial year.

As of 30 June 2017, the firm’s underlying funds under management totalled nearly $1.5 billion, more than double the $703 million recorded in the previous corresponding period.

Yellow Brick Road executive chairman Mr Bouris told Mortgage Business that the firm’s relationship with Macquarie “remains the same and is still as strong as ever”, adding that the reduction in ownership is a result of notorious raider Sir Ron Brierley’s Mercantile Investment Company increasing its stake from 9.1 per cent to 19.9 per cent. 

“We aren’t the only company Macquarie Group has reduced its shareholder stake in, and we won’t be the last,” Mr Bouris said.

While there have been no disclosures around a potential takeover by Mercantile, Yellow Brick Road shares are trading at a record low of around 11 cents, taking its market capitalisation to around $31 million.

More broadly, Australian banks have been consolidating or offloading their wealth businesses recently due to lower-than-expected returns and changing regulations. Despite Macquarie reducing its ownership in Yellow Brick Road, which has a significant wealth management division, its interest in the wealth market remains strong. 

According to the non-major bank, the high-net-worth client segment of the market presents “significant opportunities” for growth. It noted that Australia ranks in the top 10 countries globally for high-net-worth individuals (more than 1.2 million). 

“High net worth is a segment that has grown by 7.4 per cent, or approximately 80,000 adults, since 2011... [high-net-worth clients] also comprise a substantial proportion of its [Macquarie’s] private wealth business,” Macquarie said.

As such, earlier this month, the non-major bank announced that its Banking and Financial Services group would bring together its private bank and private wealth businesses and focus its growth strategy on high-net-worth clients. 

“We are striving to create a comprehensive and tailored wealth and banking offering for our clients that can take them from the wealth accumulation stage of their lives through to retirement. Concentrating on one client segment enables us to better deliver on this commitment,” Macquarie’s head of wealth management, Bill Marynissen, said.

Despite Macquarie gradually reducing its stake in Yellow Brick Road, the non-major bank’s former executive director and mortgage industry veteran, Frank Ganis, maintains his advisory role in the Bouris-led firm, which he stepped into in January. In order to take on the more “hands-on” leadership role, Mr Ganis had to give up his position on Yellow Brick Road’s board, after joining in August 2017.   

In January, Mr Ganis claimed to have identified many areas of opportunity to leverage his experience, knowledge and capabilities: strategy, funding, product development, sales and distribution, and operations.

“I look forward to helping the team drive profitable growth this year and beyond,” Mr Ganis said at the time.

Yellow Brick Road may have additional challenges this year, after recently being served with a summons over the earn-out provisions stipulated in the agreement it signed to acquire non-bank lender Resi Mortgage Corporation.

Under the share sale agreement dated 8 July 2014, the firm was required to pay $28 million in cash and $5.5 million in shares, with a deferred amount of up to $2.5 million also payable one year after settlement if certain earn-out conditions were met.

Yellow Brick Road said that it will defend its position that no amount is payable as the conditions were not satisfied.

[Related: Macquarie announces major restructure]