Aussie bank to buy A$4b of home loans

Source : Business Times - 25 Dec 2008

Commonwealth Bank of Australia, which last week scaled back a share sale after saying that bad debts were rising, will buy up to A$4 billion (S$3.93 billion) of loans from a General Electric Co unit to extend its lead in the nation’s mortgage market.

Sydney-based Commonwealth Bank will get loans that are 100 per cent insured, the lender said yesterday.

Aussie Home Loans, a mortgage provider 33 per cent owned by Commonwealth Bank, will buy the brand and distribution network of Wizard Mortgage Corp, the GE division.

Commonwealth Bank beat back a challenge from National Australia Bank Ltd, which last week said that it was in talks to buy loans and assets from Wizard. Aussie, which sold a third of itself to Commonwealth Bank in August, gets 160 Wizard branches across Australia, where home prices have bucked a global slump.

‘Commonwealth gets to broaden its customer base without putting too much strain on its balance sheet,’ said Paul Xiradis, who manages the equivalent of US$8 billion as chief executive officer of Ausbil Dexia Ltd in Sydney.

‘Aussie effectively have direct access back to Commonwealth, and this allows them to be competitive while offering products they don’t have to fund.’

Commonwealth Bank said that it would acquire A$2 billion of Wizard loans at the end of February, and is discussing the purchase of a further A$2 billion. The bank last week sold A$2 billion in shares and said that bad debts would rise.

Aussie executive chairman and founder John Symond is increasing his loan distribution network in a property market that has so far weathered the global credit crisis.

While the US property market suffers its worst slump since the Great Depression, home prices in Australia rose 2.8 per cent from a year ago in the third quarter.

Meanwhile, the tie-up with Commonwealth Bank, the nation’s biggest provider of home loans, has improved Mr Symond’s access to wholesale funding at a time when non-bank lenders, which don’t have a deposit base to fall back on, have struggled as the global credit crisis forces up funding costs.

‘The acquisition of Wizard accelerates Aussie’s growth initiatives, adding a significant retail channel and distribution capability to our existing operations,’ Mr Symond said in a statement posted on the closely held company’s website.

Aussie, with a loan book of A$24 billion at the time of Commonwealth Bank’s stake purchase, didn’t say how much it had paid for the Wizard assets.

Credit markets seized after Lehman Brothers Holdings Inc collapsed on Sept 15 and remain blocked amid US$1 trillion in losses and writedowns at the world’s biggest financial companies.

Fairfield, Connecticut-based General Electric is selling assets and exiting underperforming businesses to bolster profit growth. Its GE Money unit has withdrawn from vehicle financing in Australia and said that it may close its Wizard home loans unit in New Zealand.

GE, which bought Sydney-based Wizard in 2004, hired Citigroup Inc and JPMorgan Chase & Co in June to advise on the sale of Wizard.

Aussie will retain Wizard’s chairman, Mark Bouris, as an adviser, Mr Symond said in the statement.

To boost access to loans, the government in September said that it would spend A$4 billion buying residential mortgage-backed securities to revive a debt market frozen by the credit crunch.

Commonwealth Bank yesterday said that the loans purchase would have little impact on its Tier 1 capital ratio or 2009 funding plans. Last week, the bank raised A$2 billion in a share sale arranged by UBS AG and said that provisions for bad loans would increase.