Perth-based Homeloans Ltd has announced that its managing director Brian Jones will step down, two months before his contract expires, as the group deals with the sub-prime impact on its warehouse funding.
Perth-based Homeloans Ltd has announced that its managing director Brian Jones will step down, two months before his contract expires, as the group deals with the sub-prime impact on its warehouse funding.
In a statement today, Mr Jones and the board said they had agreed that Mr Jones will not extend his existing contract past its current term of 31 December 2008.
Co-founder and chairman Tim Holmes will take the role of chief executive on an interim basis while the board finds an appropriate candidate for the long term.
Mr Holmes told WA Business News that overall the business was in very good shape and that its main lines of funding - Challenger, Adelaide Bank and ING - were solid.
"We would like more loan applications, frankly," he said.
Mr Holmes said that the departure of Mr Jones provided an opportunity for the group to look for someone who could lead it into the next phase of the market "whatever that morphs into".
The warehouse funding relates to around 10 per cent of Hoanloans $6 billion in loans undermanagement.
Mr Holmes said that the group was discussing the future financing of RMT warehouse asset, but the worse case scenario was the potential loss of future income streams from that business. He said Homeloans would have no liability for the $600 million which it had bought from FAI collowing the collapse of HIH.
Homeloans said in its annual report today that it was discussions with its warehouse provider for its RMT asset "in relation to the future maturity of the facility, however a high level of uncertainty still remains in the current market".
"The warehouse facility is structured so that if it is not renewed or otherwise defaults, there is only limited recourse to the group'" the company stated in its annual report.
"If the warehouse facility is not renewed or otherwise defaults and the related assets are liquidated, the primary impact for the group would be the loss of future income streams from excess spread, being the difference between the group's mortgage rate and the cost of funds and fee income.
"The directors are satisfied that in the event of either of these scenarios occurring, the group's ability to
continue as a going concern will not be affected."
In the financial year ending June 30, Homeloans recorded a net loss of $12.5 million largely driven by write-downs and adjustments of about $17.2 million due to impairments to goodwill as well as losses on loans and advances in key segments of its lending business.
"Brian has decided to step down immediately but will be available on an as needs basis to the end of December 2008," Homeloans said.
Mr Jones has been with the company for over four years and was appointed managing director in January 2006.
Below is an excerpt from the company's full year report:
Operating Results for the Year
The consolidated entity experienced an increase in loan originations of 8% on the prior corresponding
year.
Revenue increased to $121,657,000 (2007:$93,120,000) primarily due to both the full year impact of the
prior year acquisition of Melbourne based Independent Mortgage Corporation Pty Ltd and seven months
operating results from Auspak Financial Services Pty Limited, a Sydney based mortgage distribution
business acquired in November 2007.
Consolidated net profit after tax and before significant items for the year was $4,678,000
(2007:$2,199,000) up 113% on the previous corresponding period, reflecting a positive result from:
- increased loan volumes (up 8% on 2007) including full year of originations from Independent
Mortgage Corporation Pty Ltd and seven months of originations from Auspak Financial Services;
- a full year of interest earned on proceeds from the new share capital issued during the prior year;
and
- continued cost management focus together with scale benefits achieved via recent acquisitions.
In August 2007, global debt markets witnessed severe dislocation and a significant tightening in credit
markets. The "US sub-prime crisis", as it's now referred to, has affected all credit markets globally,
including the mortgage lending and securitisation markets in Australia, both of which are markets in which
Homeloans Limited operates.
The significant tightening in credit markets resulted in a reduction in lending volumes originated by the
Group, as it did for many market participants, particularly over the second half of the year as the impacts
of the crisis began to flow through the market. In particular, new loan originations via the Groups'
securitisation segment (RMT) have reduced significantly following tightening of some of the key
parameters around the Group's warehouse facility. In addition to reduced lending volumes, the
dislocation in credit markets has also resulted in higher funding costs. This has further impacted the
Group's securitisation business with the warehouse facility margin increasing during the second half of
the financial year.
As a direct result of these impacts, Homeloans has recognised an adjustment in the current financial year
result. The first part of this adjustment is to recognise an impairment write-down of $13,029,000 after tax
relating to goodwill for both the "Origination and Management" and "Securitisation of Mortgages"
segments. The second part is a loss after tax of $4,160,000 on loans and advances associated with the
"Securitisation of Mortgages" segment. This second adjustment represents the write-off of transaction
costs included in the carrying amount of loans and advances, which reflects the expectation of lower
future cash flows to be generated from the loans within the RMT SPV's. The total non-cash adjustment of
$17,189,000 results in a statutory loss for the year of $12,511,000.
The Group remains in discussions with its warehouse provider in relation to the future maturity of the
facility, however a high level of uncertainty still remains in the current market. The warehouse facility is
structured so that if it is not renewed or otherwise defaults, there is only limited recourse to the Group. If
the warehouse facility is not renewed or otherwise defaults and the related assets are liquidated, the
primary impact for the Group would be the loss of future income streams from excess spread, being the
difference between the Group's mortgage rate and the cost of funds and fee income.
The directors are satisfied that in the event of either of these scenarios occurring, the Group's ability to
continue as a going concern will not be affected.
The Group continues to benefit from its diversified funding base for originating loans via its "Origination of
Mortgages" segment. Given Homeloans has agreements with a number of funders, it has been able to
continue to originate reasonable levels of lending volumes during the challenging market conditions of the
past ten months. In the year ahead the Company will continue to focus on diversifying its funding
arrangements and growing its nationwide distribution networks. The Group also has substantial funds on
deposit and is well positioned to capitalise on opportunities as the sector moves into an inevitable period
of consolidation.
