Westpac has bought the RAMS brand and franchise network of 92 stores around the country for $140 million - a fraction of what RAMS was worth when the company listed two months ago.
RAMS' share price crashed a month ago when the company revealed the United States credit squeeze was posing funding problems for some of its loans.
Analysts say while the deal would not be the first option for RAMS, it shows Westpac is confident of riding through the credit market crisis.
Good deal
The past two months for RAMS Home Loans have been disastrous.
Just three weeks after listing on the Australian Stock Exchange, its $2.50 share price had crashed to 55 cents.
The company revealed the United States credit squeeze was creating funding problems for $6 billion worth of its home loans.
But today RAMS has received a lifeline. Westpac chief executive David Morgan announced his company has bought the RAMS brand and its shop fronts and agreed to provide up to $2 billion to help the company's funding problems.
"I'm delighted to announce a significant transaction for Westpac, a transaction that expands our distribution reach and provides us with a new growth path," he said.
"On growth, we plan to introduce a broader range of products to complement the RAMS mortgage offering.
"This will initially include a broader set of mortgage products and items such as credit cards, personal loans and general insurance."
RAMS has 92 stores around the country, where customers can go in and purchase a home loan.
The brand is well recognised and the stores are in prime locations in both regional areas and capital cities. This is what a number of banks have been eying off for the past few weeks.
For $140 million, independent banking analyst William Ammentorp says it is a good deal.
"So the big thing is that branch network. A lot of the RAMS franchisees are small businesses operating in local communities," he said.
"They've been providing mortgages and getting people houses for a number of years.
"They pick up those shopfronts and it allows Westpac to perhaps sell Westpac product through those RAMS distribution outlets, but also the opportunity to have yet another outlet to sell through."
"I think Westpac commented it was a 10 per cent uplift in their branch network when this transaction settles."
Solid sector
Mr Ammentorp also says the deal could be a sign Australia has seen the worst of global credit market crisis.
"The larger organisations are doing very well," he said.
"They are very well-capitalised, very well-run, and in times like this it shows just the strength of the Australian banking sector.
"That's not to say there couldn't be difficulties. Northern Rock, the lines around Northern Rock with people withdrawing funds had absolutely no rational basis yet it happened.
"So I'm not suggesting it could happen here, but you never know what can happen in a marketplace.
"But certainly the Australian banking sector and Australian financial services are renowned around the world for being solid and very, very well-run."
The sale is now subject to shareholder approval and is expected to be finalised by January next year.Source: ABC
