RAMS sale to Westpac Bank fair value

RAMS Home Loans Group Ltd has received independent expert approval for the fire sale of its franchise network, but its existing mortgage book remains in deep trouble.
The beleaguered non-bank lender has also revealed that its founder and chairman John Kinghorn, who made $650 million when RAMS listed earlier this year, was paid $80,000 in 2006/07.
Chief executive Greg Kolivos received a total remuneration of $625,000, which included a $200,000 cash bonus.
Westpac Banking Corporation Ltd's $140 million offer for RAMS' 92 branches, brand name, and all the future business it writes, was fair-value and in RAMS' best interests "given its current circumstances", a report by Deloitte Corporate Finance said.
As a further sweetener, Westpac on October 2 also agreed to provide RAMS with $1.5 billion to fund its existing mortgage book, which Westpac decided not to buy.
RAMS ran into trouble in August when the global liquidity freeze cut off more than $6 billion of funding that it sourced from the US extendable commercial paper (XCP) market.
Deloitte has valued RAMS' $14.6 billion loan book at between $213.7 million and $272.9 million, assuming RAMS can refinance its XCP programs.
This represents a value of between 60 and 70 cents per share.
But if RAMS can't refinance the programs, Deloitte has valued the book between $124 million and $152.6 million, representing a per share value between 35 cents and 43 cents.
RAMS shares closed one cent higher at 32.5 cents. They were offered in May at $2.50 each.
The firm confirmed that the $1.5 billion in funding from Westpac was conditional on RAMS forming a syndicate of lenders.
It also accepted it might not be able to find them by the time its XCP programs expire in February.
If it can't, RAMS said it will lose "all, or substantially all" of the economic benefit of the $6 billion plus worth of loans funded by the XCP programs.
As a double whammy, RAMS will also be obliged to pay trailing commission to brokers on those loans.
RAMS said it would be "optimistic" to believe that it could fund its loan book in residential mortgage-backed securities (RMBS) markets instead.
It also accepted that funding costs will be higher going forward, adding that XCP and RMBS market were still very hostile.
In its explanatory memorandum to shareholders, RAMS also revealed that it had tried all sort of ways to fund its mortgage book.
Market soundings for RMBS issues in the US and Europe fell on deaf ears.
Earlier this month, RAMS priced a $300 million RMBS issue in Australia, but it revealed the issue was planned at $1 billion.
RAMS also considered tendering the sale of all or parts of its business, but said such a move was "not deemed practicable in the circumstances and short time available".
Mr Kinghorn's $80,000 pay packet last financial year was the same as his pay a year prior.
Mr Kolivos was paid $570,000 in 2005/06 compared to his most recent pay packet of $625,000.
For 2006/07, RAMS booked a 49 per cent increase in net profit to $43.5 million.
RAMS shareholders will vote on Westpac's offer at the non-bank lender's annual general meeting on November 26.
Westpac, meanwhile, said it was happy with Deloitte's valuation of the franchise business of between $35.6 million to $167.5 million.
"I believe Westpac is well positioned to deliver a positive future for RAMS franchisees and employees," chief executive David Morgan said.
Source:AAP 2007

Westpac Bank throws RAMS a lifeline

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