Aussie bank extends loans market lead

By Malcolm Scott  |   2008-12-26  |     NEWSPAPER EDITION

THE Commonwealth Bank of Australia, which last week scaled back a share sale after saying bad debts are rising, will buy up to A$4 billion (US$2.7 billion) of loans from a General Electric Co unit to extend its lead in the nation's mortgage market.

The Sydney-based Commonwealth Bank will get loans that are 100 percent insured, the lender said in a statement on Wednesday.

Aussie Home Loans, a mortgage provider 33 percent owned by Commonwealth Bank, will buy the brand and distribution network of Wizard Mortgage Corp, the GE division, according to Bloomberg News.

The Commonwealth Bank beat back a challenge from the National Australia Bank Ltd, which last week said it was in talks to buy loans and assets from Wizard. Aussie, which sold a third of itself to Commonwealth Bank in August, gets 160 Wizard branches across Australia, where home prices have bucked a global slump.

"Commonwealth gets to broaden its customer base without putting too much strain on its balance sheet," said Paul Xiradis, who manages the equivalent of US$8 billion as chief executive officer of Ausbil Dexia Ltd in Sydney. "Aussie effectively has direct access back to Commonwealth, and this allows them to be competitive while offering products they don't have to fund."

The Commonwealth Bank will acquire A$2 billion of Wizard loans at the end of February, and is discussing the purchase of a further A$2 billion, it said in the statement. The bank last week sold A$2 billion in shares and said bad debts will rise.

Aussie Executive Chairman and founder John Symond is increasing his loan distribution network in a property market that has so far weathered the global credit crisis. While the United States property market suffers its worst slump since the Great Depression, home prices in Australia rose 2.8 percent from a year ago in the third quarter.

Meanwhile, the tie-up with the Commonwealth Bank, the nation's biggest provider of home loans, has improved Symond's access to wholesale funding at a time when non-bank lenders, which don't have a deposit base to fall back on, have struggled as the global credit crisis forces up funding costs. "The acquisition of Wizard accelerates Aussie's growth initiatives, adding a significant retail channel and distribution capability to our existing operations," Symond said.