Westpac has appointed bankers to offload RAMS, the lender it rescued during the global financial crisis but was forced to clip amid the banking royal commission.
Westpac has appointed Morgan Stanley to shop around the iconic Australian mortgage brand it bought for $140 million in 2007, a quarter of its float value just a few months before.
Currently, RAMS is a network of around 40 franchisees who have been selling only Westpac products for the past four years.
The brand is a far cry from its earlier days as a powerhouse of the non-bank lending market before facing collapse during the subprime mortgage crisis that hit global markets.
Westpac stepped in to save it, looking to boost its position in the home lending market.
RAMS survival story
For the next decade or so, RAMS managed to keep a strong customer base, largely thanks to its marketing and innovative products in the low doc loan space.
RAMS was popular with self-employed and sole trader borrowers who accounted for about 40% of its lending book.
However, when the Hayne Royal Commission led to tightened “best interest” lending provisions for mortgage brokers, major banks pulled back from lending to borrowers with unusual profiles.
From 2020, RAMS franchisees were limited to selling Westpac’s products using the same lending criteria as the parent bank.
What will the sale of RAMS mean for borrowers?
It’s speculated mortgage brokers including Aussie Home Loans or Mortgage Choice, both owned by REA Group, could be among potential buyers of RAMS.
However, the deal may not include Westpac selling loans already written by RAMS, rather its front book sales and distribution network.
Industry analysts say under new ownership, the brand has the potential to re-establish its market presence and bring value to Australian homebuyers.
Judo Bank acquisition speculation
Another high-profile small player Judo Bank is also the subject of sale talk this week.
It’s reported Bendigo Bank is looking to acquire Judo in a bit to better compete with the major banks and gain a larger share of the business lending market.
Judo Bank was co-founded by its outgoing chief executive Joseph Healy in 2016, targeting small and medium-sized businesses often overlooked by larger banks.
Judo is also known for offering eye-catching term deposit products in the consumer market to attract customers.
The challenger bank started well, eventually listing on the ASX in 2021 with a market value of $2.3 billion, well above its book value of $1.35 billion.
Judo kicked by climbing rates
However, Judo has struggled in the high interest rate environment, hit by rising capital costs.
Its recent half-year result showed it was still growing its deposits, up 16% over the previous half, while business loans were up 9%.
Market observers speculate Bendigo will offer scrip rather than cash for the bank with Bank of Queensland also emerging as another possible buyer.
National Australia Bank has also been touted as a contender.
Analysts say there is likely to be more consolidation in the banking industry following last week’s Australian Competition Tribunal decision to allow ANZ to acquire Suncorp’s banking business.
The Tribunal found competition from Macquarie Bank and the growing role of brokers in the lending industry was putting enough pressure on the big four banks to allow the ANZ/Suncorp banking acquisition to go ahead.
Image by Rodeo Project Management Software on Unsplash
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