From The Australian 9/11/12 Tim Boreham YELLOW Brick Road's Macquarie-backed scheme to take on the banks' mortgage oligopoly with aggressive pricing transports us back to the 1990s, when upstart apprentice Mark Bouris and Aussie John "we'll save you" Symond did just that.
A thousand non-bank flowers bloomed - until the weedkiller of collapsed funding markets elevated the big four back to their "rightful" dominance. These days, Aussie John's Aussie Home Loans is one-third owned by old nemesis Commonwealth Bank, while Bouris had his Alan Bond moment and sold his Wizard Home Loans to GE Capital (which then sold out to Aussie).
"Banks are as strong as they have ever been," says Tim Holmes, exec chair of survivor Homeloans.
The only difference is that interest margins are much, much slimmer.
Still, there's a lot to like about YBR's pending assault, given the wholesale funding is from Macquarie's capacious balance sheet, while YBR has the distribution capacity. YBR's Bouris is a one-man promotional machine, but insofar as he needs help YBR shareholder Nine Entertainment has ad slots to spare.
The searing question is who makes money when you discount the product by 86 basis point, especially when 137 branch licensees will take a cut.
YBR currently is a modest affair with a $1.06 billion mortgage book. YBR lost $1.24 million in the September quarter on revenue of $4.25m, up 49 per cent, derived from mortgages, wealth advice and insurance.
Homeloans has a $8bn book, on which the company derives management income. It has plans of its own for a third-party alliance based on using the home loan account, rather than a transaction account as the main conduit.
"Using technology, there are a lot of interesting things you can do," Holmes says.
Homeloans has had its jitters but last year made a net $8m on revenue of $74m, both down about 12 per cent.
Firstfolio, an amalgam of mortgage originator, broker and manager, boasts high-profile names including chairman Eric Dodd and former Computershare heavy Tony Wales.
Firstfolio posted a creditable $3.4m full-year profit on revenue of $104m. The problem is a $62m debt burden ($38m is owed to CBA and $29m to Wales).
Criterion had Firstfolio as a spec buy two years ago, but we'll avoid this one given the $57m net tangible asset deficiency.
Homeloans is a buy for its 8 per cent yield.
The rarely traded YBR gained 7c yesterday on volume of 3.4 million shares and has spiked 50 per cent in two weeks. We don't mind the story but the stock's too hot. Avoid.
FFF Price at posting:
1.5¢ Sentiment: None Disclosure: Held
