Home mortgage lender RAMS is caught in the eye of an intensifying global financial storm, with its share price collapsing as it searches for billions of dollars in funding.
But the boss of the nation's biggest non-bank mortgage lender told The Australian last night that its customers had no cause for concern, and the business was not under threat.
"Yes, RAMS has some short-term funding issues to address, but that in no way affects our ability to continue to operate," chief executive Greg Kolivos said. "It's business as usual as far as we're concerned."
RAMS listed on the Australian Stock Exchange on July 27 in an $885 million float, enabling founder John Kinghorn to reap more than $600 million in cash by reducing his holding from 93 per cent to 20 per cent.
But investors who paid the $2.50 issue price were a long way under water yesterday after RAMS shares crashed again in response to the company's revelations about its funding problems.
The stock sagged 48.5c, or 36 per cent, to 85.5c, hitting an intra-day low of 55.5c. At the close of trading, the company was worth just $306 million, meaning Mr Kinghorn could buy it back with the cash he raised by selling shares into the float.
Other non-bank lenders, such as Bluestone, have also been hit by higher borrowing costs, which are likely to be passed on to customers in the form of higher mortgage rates. On Wednesday, Commonwealth Bank chief executive Ralph Norris said rates would inevitably rise across the industry.
Mr Kinghorn said on Tuesday, when the full extent of RAMS's problems surfaced, that "life was cool" until Thursday last week.
That was when France's biggest bank, BNP Paribas, triggered a new wave of global instability by suspending redemptions on several investment funds exposed to the US sub-prime mortgage crisis.
RAMS has no risky sub-prime exposure, but it relies on the evaporating short-term debt market in the US to raise money that it on-lends to Australian home buyers. The company has about 60,000 home loans to borrowers around the nation.
It passed on last week's 25-basis-point hike in official interest rates to new customers, while rates for existing borrowers went up 25-30 basis points. Despite the crisis, RAMS said on Tuesday it would not jack its rates up to offset the increase in its own funding costs.
In the US overnight on Wednesday, investors baulked when RAMS tried to roll over $600million in 30-day funding.
For the first time, an Australian company relied on a funding clause in the short-term debt market to extend its commercial paper, giving it a 180-day window to find alternative, longer-term funding for $6.17 billion of its $14.16 billion loan book.
RAMS told the stock exchange yesterday that the company's performance was not at fault.
"The current issues being experienced are as a result of the tightening in the global credit markets and not the performance of the company," it said in a statement. "The underlying business of the company continues to operate profitably."Source: The Australain
