Lendi and Aussie Home Loans strange bedfellows in a marriage of convenience

Lendi CEO David Hyman, left, with co-founders Sebastian Watkins, Martin Lam and Mark Kalajzich. Picture: Lendi via NCA NewsWire

Mergers are extremely difficult. Executing and integrating well means taking employees and other stakeholders along for the ride.

The tie-up of Lendi and Aussie Home Loans started with a lot of promise, but some three years on there are a string of issues bubbling under the surface. Among them is a dispute with a large group of Aussie franchisees over how customer mortgage referrals and leads are distributed, while there also appear to be cultural issues at Lendi head office.

Sources told this column morale at Lendi’s headquarters “is terrible” with some employees complaining of a lack of transparency about operating decisions and strategy.

Statutory losses swelled to $92.3m in the year ended June 30, 2023, while underlying earnings – adjusted for lumpy items and one-off restructuring costs – fell to $20.5m, from $55.3m in the prior fiscal year.

More recently, market share has dipped to 5.7 per cent from 6.5 per cent as of December 31.

While some of the lacklustre results can be attributed to higher interest rates and integration costs, there are some clear and undeniable problems at the ­company.

Perhaps the first red flag at Lendi came in late 2022. That’s when the company told staff that two of its four founders would be exiting the group, due to differing management approaches. Chief product officer Mark Kalajzich departed first, while Martin Lam stayed on till the following year to oversee the delivery of a program called Aussie Ready.

The company is run by another co-founder, David Hyman, while the fourth, Sebastian Watkins, heads Lendi’s operations.

The tie-up of Lendi and Aussie Home Loans started with a lot of promise, but some three years on there are a string of issues bubbling under the surface.

The duo held online meetings with staff, brokers and franchisees on Friday in an attempt to rally the troops. Several of those meetings were, however, disrupted by the technology outage that plagued the nation on Friday.

Hyman is understood to have told attendees that Lendi is lifting its investment in the Aussie brand by several million dollars, but he conceded the company didn’t always get everything right. There were areas where trust might need strengthening.

Kudos to him for acknowledging the problem but Lendi needs to work with its people on solutions. Watkins used the forum to take swipes at the tech systems and performance of Aussie when it was wholly owned by CBA and run by James Symond, which never bodes well for bringing people together.

The Lendi leadership didn’t appear to open the online meeting up for questions from staff, brokers and franchisees. That also speaks volumes.

Hyman and Watkins did note that unconditional mortgage approvals were returning to higher levels at Lendi/Aussie and told staff that “change is hard” and they were all in it together. They also highlighted a whistleblower program for employees with concerns about how the company is being run. A Lendi spokesman declined to comment.

On the technology side of the business, the company in recent months brought in consulting firm EdgeRed to assist it working through the data strategy for Aussie. Part of the project has to do with accessing new revenue streams for the company, such as property buying through sections of the market, like buyers’ agents.

EdgeRed’s work for Lendi spans customer and property data and potential external data partnerships. Lendi separately told staff in recent months it was bringing forward data work for Aussie and doubling down on investment.

The consultancy is also working on initiatives, including the Aussie store of the future, and having the mortgage broker’s role expanded to more of a coach.

Interestingly, Lendi is understood to have made a handful of redundancies in its data team last week, including the head of a team.

Lendi certainly needs to navigate the situation carefully. Too many domestic companies have neglected the human element in mergers and acquisitions, leading to departures and destroying value.

A McKinsey & Company article on the topic said the “basic problem” in many deal integrations was a tendency for those at the top to focus mostly on changes that would help to capture a transaction’s value targets. That saw other measures required to maintain and boost a company’s health often ignored.

“Organisational design, for example, is always top of mind in the early stages of merger planning, but companies often sidestep cultural differences until difficult issues come to light,” McKinsey said.

Lendi’s bank shareholders will be demanding improved performance, despite cultural issues.

CBA, ANZ’s external venture capital unit 1835i and Macquarie Bank own stakes in Lendi. CBA is the largest of the bank shareholders with about 40 per cent.

Macquarie’s puzzle

Macquarie’s board has an unusual problem. It has a more uncertain chief executive succession process after the departure of the frontrunner – commodities and global markets boss Nick O’Kane – in late February.

O’Kane’s exit was a shock to investors, particularly as he emerged at global energy and commodity trading house Mercuria, and it removed a safe pair of hands to succeed CEO Shemara Wikramanayake.

There is a sense among some investors that calendar 2025 may see a changing of the guard at Macquarie, giving the board some time to finesse its thinking. By then, Wikramanayake, who turns 63 this year, will have been in the role for around seven years.

Macquarie Bank CEO Shemara Wikramanayake, centre, with chairman Glenn Stevens, left and finance chief Alex Harvey. Picture: Britta Campion

Macquarie is one of very few large public companies globally that has always tapped internal candidates to run the company. Next year – if a changeover occurs – will likely be no different. But this time it is perhaps less clear who the anointed executive will be.

In prior succession rounds, Nicholas Moore and his successor Wikramanayake were considered shoo-ins for the top job.

This time, finance chief Alex Harvey would have to be a strong contender, as is banking and financial services boss Greg Ward. Working against Harvey is the fact that he hasn’t run a major business unit, meaning one option would be to restructure the leadership team to test his mettle ahead of any CEO change. Harvey did, however, lead Macquarie’s Asia division for three years through 2014. Ward has run the banking unit since 2013 and prior to that was finance chief.

Other internal candidates – but considered less likely to take the reins from Wikramanayake – are Macquarie capital boss Michael Silverton and the head of asset management, Ben Way.

On the eve of Macquarie’s annual general meeting this week, investors are alert to any personnel changes and any definitive earnings guidance, given the cautious tone applied at the softer full-year results in early May.

At the AGM on Thursday Wikramanayake will provide an update for Macquarie’s first quarter ended June 30, but more telling will be any forward-looking statements on the outlook for the group or upgraded commentary about its divisions.

Investors will also want to hear the bank is making progress on remediating its governance processes, given it is still the subject of an additional $500m capital charge imposed by the prudential regulator. That related to, among other things, deficiencies in Macquarie’s management of operational risk tied to its complex intra-group structure.

While Macquarie’s board has managed succession well in the past, the task at hand this time throws up an additional challenge. Chairman and former Reserve Bank governor Glenn Stevens and his fellow directors will want to ensure the group doesn’t lose any further top-tier executives.

They need to put in place a Macquarie CEO changeover that ensures a smooth transition.