No takers for RAMS franchise as Westpac scraps sale process

Westpac has scrapped the sale of its mortgage broker franchise business RAMS Home Loans after an unsuccessful Morgan Stanley-led attempt to sell it couldn’t secure an acceptable offer.

Westpac CEO Peter King. Picture: Richard Dobson

Westpac has scrapped the sale of its mortgage broker franchise business RAMS Home Loans after an unsuccessful Morgan Stanley-led attempt to sell it couldn’t secure an acceptable offer.

In a statement, a Westpac spokesman said the lender would consider the future of the franchise distribution business, which it bought for $140m in 2007 and once was a strong competitor in the low documentation mortgage lending industry.

“Westpac has concluded the sales process for its RAMS business without reaching a sales agreement,” the spokesman said.

“Westpac will continue to operate RAMS and support RAMS franchisees and customers while it considers further strategic options for the business”

The bank had appointed Morgan Stanley earlier this year to sell the franchise business without its mortgage portfolio, and a handful of suitors participated in the talks, a person with knowledge of the sale process said. However, no acceptable terms and price were agreed to and the process was terminated.

Westpac purchased RAMS in 2007 for $140m in cash, but observers said the value remaining on RAMS was now “negligible”.

In the wake of the Royal Commission and while Westpac was being accused of weak responsible lending standards by regulators, RAMS stopped offering low-doc loans to self-employed borrowers that accounted for about 40 per cent of its lending flows.

Since then, broker numbers have declined significantly, with many baulking at renewal terms once franchise agreements are up for renegotiation, according to industry sources.

Westpac last year finalised its “portfolio simplification” which saw its exit of 10 businesses including life insurance, asset finance and superannuation units. Its Pacific banking business was also put on sale before that process was scrapped in October, when the bank said it would retain Westpac Fiji and Westpac Bank PNG for the foreseeable future.

Back then, it also told investors it had failed to find an acceptable offer for its wealth management platform Panorama, after spending over $1bn in the original BT business in 2002 and investments in the platform.

Separately, in a statement to the exchange on Tuesday, Westpac informed investors that its net profit after tax for the first half of 2024 will be reduced by a $164m charge due to notable items. Analysts expect the profit to fall 17 per cent to $3.3bn compared to the previous year. 

The notable items refer to interest rate hedges that have generated accounting losses. The losses, the bank said, will “reverse over time” however.

Westpac last year moved to become the only out of the Big Four banks to file accounts that only show a statutory net profit after tax. Commonwealth Bank, NAB and ANZ file a statutory number but focus on “cash profit” as a measure of ongoing and underlying operations that excludes such notable and one-off items.

Analysts say, Westpac’s decision to change its reporting style makes it harder to analyse its performance, and compare it with peers. It also adds “accounting noise” to its accounts at an inopportune time, marked by transformation in the business.

Westpac shares closed up 1.1 per cent at $26.01 on Tuesday, in line with the broader financial sector.