RHG - RHG Limited

[Rainmaker2000]

Re: RHG - Rams Home Loans

ROE's scepticism seems warranted on this point....no doubt, like any large business, major banks wear losses on some products to build market share and competency in other products.....for example, BankWest (Owned by Forein Bank) entered the Aussie market with its ING Saver competitor with a deliberate view to making losses on every deposit..........so much so that professional arbitrages moved in hurting BankWest badly and thus BankWest limiting the deal to $1 million or less to each account holder.........ironically, BankWest was loss leading to build up its home loan presence.......my understanding is that homeloans are the bread and butter of banking.....everytime you walk in its, oh you are renting, 'have you ever thought of buying a home' (at 7 X average Aussie income!!!who would be buying houses now, anyway.....) I would find it very hard to believe banks loss lead on homeloans...of course percentage spreads have narrowed majorly over the last few decades, but have more than been replaced with the rivers of bank fees payed by ignorant Aussie punters.....

 

[jkool]

Re: RHG - Rams Home Loans

Ok I looked around and actually did find ONE article which seems to somewhat weakly support the "banks underwrite mortgages at loss" claim.

I am not sure how credible is this source (heck I could write my own report on my blog claiming how great the future for RAMS is going to be ) since no other known major media outlet seemed to catch on this story so far. Anyway you be the judge:

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=B61911F4-17A4-1130-F5FFE198970EE93A

Even than, from what I read, its only put as "some JP Morgan analysts believes that some smaller non banking lenders may...". In my eyes this is still quite a long shot from 100% trustworthy fact.

But our argument aside, the above is a very informative article with high educational value for the unaware ones.

And above all: Selling a product deliberately long term below cost in order to sink the competition (sounds like something WOW or CGJ would do ) sounds quite dodgy business practice indeed. I have read few articles in the past (mostly from US as far as I can recall) of this practice being unlawful. Dumping or something? Anyone?

 

[jkool]

Re: RHG - Rams Home Loans

jkool,

I work in the industry (and have done so for a number of years) and it is common knowledge amongst pricing people that major banks write unprofitable business to leverage into other products (which is why discounts are offered with package incentives).
Most profitable securitised lenders (which don't have the luxury of writing non-profitable business) are looking at a 0.3-0.35% margins across their loan books.

Going by your figures, out of the 1% (although source funds are often cheaper) are loan management fees, compliance, default management, loan maintenance (including statements) and often an upfront & trailing commisions to the originators. Profits are wafer thin on massive volume industry wide.

Mofra:

I respect your opinion, even more so if you have, as you say, been working in the industry for some years now. But from what you say I fail to understand why would that be the case (constantly subscribing mortgages at loss).

Even my oversimplified number crunching (and imho with large adjustments made to accommodate the inevitable errors) is pointing me to the conclusions I have extensively described in my previous essays here .

If it is not too much of a hassle pls throw at me some numbers. Show me a real life mortgage example how your (or any of the big banks) exactly goes from sourcing the money for x%, pays commissions and what have you of y%, retails the mortgage at z% and arrives to loss.

Thanks in advance

 

[jia]

Re: RHG - Rams Home Loans

i searched about RHG at westpac broking size, according to their data, rhg total asset is 13,043 mil, and total liabilities is 12,902. so the net asset is 141 mil, divide by their issued share 354 mil, it works out the RHG share is worth 39.8 cents, which is minium, i think. can anyone tell why their share only trade at about 34 cents?

 

[Rainmaker2000]

Re: RHG - Rams Home Loans

Interesting points Jcool......I'll just put my competition lawyer hat on and confirm to you that selling a product below cost is a breach of Section 46 of the Trade Practices act where it amounts to 'predatory pricing'........the courts are of course weak as piss in enforcing the provision cause they don't understand it but suffice to say that the Woolworths of this world have all kind of justification for the conduct...eg. I was just building market share (as if that justfies being anti-competitive).......the reason why its anti-competitive is that the whole point of selling below cost is so that sometime in the future you can charge higher prices than you otherwise would have been able to, without a competitive tension

 

[waz]

Re: RHG - Rams Home Loans

Wouldnt the liabilities be a fixed number, especially if the company is not doing anything new.

whereas the assets fluctuate on a daily basis, certainly this is the case for finance company, the assets arnt exactly tables/chairs and office equipment.

The problem with financial companies is who determines the value of the assets???

The example you have provided is similar to MIG. Going by your assets - liabilities, shouldn't MIG be worth about $3.70??

No, it is lower than that, thats because not everyone believes everything the read in the MIG annual report.

 

[nioka]

Re: RHG - Rams Home Loans

Wouldnt the liabilities be a fixed number, especially if the company is not doing anything new..

Have you thought of compounding interest and penalty interest rates if they can't refinance on time?

 

[jkool]

Re: RHG - Rams Home Loans

Finally some further info from this struggler.

As I skimmed through its today's releases I noticed few keypoints:
- Delloite (ie. independent valuer) appraises this company (on "AFTER the pending sale to Westpac" basis) at between 60c-77c/share if the short term borrowings are sucessfully refinanced. If not than they still see the value around 35c-44c as far as I can recall.

- Delloite also advised that the Westpac offer of 140mil for the 90+ franchises, setup brand and future business is in higher range of their evaluation (they put the value on it around 38-165mil from memory) BUT also pointed out that to a strategic partner/purchaser the value would be substantially more!

- To my surprise it appears that the RHG management has not entirely abandoned the ship and today release still states their rather significant shareholdings. They (the managers) also intend to approve the sale to Wespac and recommend the same to all the other shareholders. The future without Westpac (and its, to the sucessfull purchase tied up, promise of large funding) is being painted out fairly bleak.

- The condition of Westpac transaction states that RHG is not permitted to onsell any new loans for the period of 3 years only (not forever!).

So where to from here? I guess it wont be the easiest task to refinance come 6+bn of loans at profitable margins however once/if that is mastered by the current management than we may yet see some spectacular turnover for this struggling stock.

And yes there still remains a rather big "speculative factor" in this stock in an expectation of a competitive bid from another "strategic financier/savior" in the near future. Exciting ain't it?

 

[Stan 101]

Re: RHG - Rams Home Loans

I've just started reading about RAMS and if I'm correct, WBC is offering 140million for branding (essentially) and the shop fronts. This does not include the franchises. This will pay out existing debt and have leave 10 million or so left over.
WBC will also agree to fund partial further 6bn outstanding debt of RAMS.

-There will be no return of capital to the investor
-There is still no solid guarantee finance for the outstanding 6bn will happen
-What is left of RAMS is to be renamed and marketed yet cannot sell a loan for a period of three years.
- The franchises are left to do what?


Pretty tight odds of it all coming together and painting a rosy picture...

Be interesting to see the outcome

 

[blaze87]

Re: RHG - Rams Home Loans

does anyone knows what's stopping the warehouse facilities from pulling the plug on RHG? would really appreciate all comments regarding this

 

[nioka]

Re: RHG - Rams Home Loans

does anyone knows what's stopping the warehouse facilities from pulling the plug on RHG? would really appreciate all comments regarding this

My guess is that if the plug was pulled the company would be placed under the management of a receiver who would try and trade through the tough period and given a temporary moratorium on loan repayments. Possibly a good thing for shareholders.

 

[ROE]

Re: RHG - Rams Home Loans

does anyone knows what's stopping the warehouse facilities from pulling the plug on RHG? would really appreciate all comments regarding this

I find it illogical for them to do so .. why would you pull the plug on someone when they can meet their repayment.

Making such move not only you risk your dividend repayment but your capital as well.

would the bank force you to repay your mortgage if you can meet repayment?
of course not, they only doing after you go into default because they know
making such move there is no winner.

 

[blaze87]

Re: RHG - Rams Home Loans

So the general consenus is that the warehouse facilities will most likely be renewed come Nov 15?
If that is so, I see no funding problem in the short-term.

 

[SevenFX]

Re: RHG - Rams Home Loans

Ouch....RHG down to 21c on morning Selloff

Fallen fair way from $2.50 to 21c in few short months.... who would have thought.

SevenFX

 

[YOUNG_TRADER]

Re: RHG - Rams Home Loans

Ouch....RHG down to 21c on morning Selloff

Fallen fair way from $2.50 to 21c in few short months.... who would have thought.

SevenFX

Crazy!!!!!

I read an article that said the founder could buy back the 75% (or whatever) he sold off to the Insto's with like 15% of the funds he recieved,

Crazy!!!!!!!!!!!!!!

 

[SevenFX]

Re: RHG - Rams Home Loans

Who is the founder YT and does he take a active role in running the company...???? Is the a link to that article or is it in paper..

Have heads already rolled or will/is there a class action against them...

I also notice there still advertising on the BOX...

SevenFX

 

[ROE]

Re: RHG - Rams Home Loans

look like written off this stocks for the year
down a fair bit since 32 cents ... I want my 10 cents dividend next year

 

[greggy]

Re: RHG - Rams Home Loans

Who is the founder YT and does he take a active role in running the company...???? Is the a link to that article or is it in paper..

Have heads already rolled or will/is there a class action against them...

I also notice there still advertising on the BOX...

SevenFX

I became wary of this company when I realised that its founder had sold such a large stake into the IPO. He would have known the company best and extracted an excellent price for the bulk of his holding.
It goes to show that risk works both ways when playing the market.
DYOR

 

[Rainmaker2000]

Re: RHG - Rams Home Loans

You guys might remember the struggle the founder had with private equity to get them to pay top dollar............after many months, private equity would not pay what they wanted for RAMS and so opted to float it to ignorant Aussie retirees instead...........

I think we can all learn something from this one and I urge you to go back and read the prospectus to see what a credible case they made for investing..............funny thing is, RAMS was not just floated at market prices.....it was floated at a premium price to almost any other home lender....they did a great job at fleecing Aussies just wanting to go along for the boom ride

 

[jkool]

Re: RHG - Rams Home Loans

You guys might remember the struggle the founder had with private equity to get them to pay top dollar............after many months, private equity would not pay what they wanted for RAMS and so opted to float it to ignorant Aussie retirees instead...........

I think we can all learn something from this one and I urge you to go back and read the prospectus to see what a credible case they made for investing..............funny thing is, RAMS was not just floated at market prices.....it was floated at a premium price to almost any other home lender....they did a great job at fleecing Aussies just wanting to go along for the boom ride

I tend to agree. IMHO to float at such a level should have never been allowed.

Looking forward though there seems to be again some positive news poppin up here and there, for instance http://online.wsj.com/article/SB119568559791401058.html?mod=googlenews_wsj
suggests bigger NAB's involvement which could sort things out once and for all perhaps. NAB does have some of the deepest pockets around if I am not mistaken.

RHG also ending 6.8% higher for the day. I think Monday meeting will give much stronger lead as far as long(ish) term future is concerned.