Bluestone cuts back hard

Bluestone Group is the latest lender to make big cuts in its lending program in the face of increasingly risk-averse global debt markets.

Bluestone, a specialist supplier of non-conforming loans, told staff and business partners yesterday that it would "materially reduce" residential origination levels and suspend commercial originations in Australia and New Zealand.

The details of the Bluestone survival strategy, while stark enough, are not as severe as the florid rumours circulating yesterday suggested.

Bluestone executive chairman Alistair Jeffery said Bluestone's warehouse lines were still in place.

"We have not had a line pulled. We had a term sheet from one of the big four for a $500 million line and we are pressing on with that.

"We are in talks with Westpac on renewal terms for one of our lines."

Still, to keep originating loans at levels even half that of 2007 Bluestone, in common with a score of niche providers in the mortgage market, needs new wholesale lending lines and in the current banking market such financing is barely available.

Towards the end of last year Jeffery said he expected business volume to be down by 40 per cent in 2008. Yesterday he said it would be closer to 70 per cent (once again, contrary to energetic market talk that originations would cease altogether).

The company will let go a number of staff. Jeffery said it would retain a sales staff of about 10.

He said it was important to maintain some origination activity to keep its broker relationships going and protect the franchise.

His aim is to have the company in a position to get the business going again quickly when funding lines open up again.

"Non-banks have outsourced their balance sheets to the capital markets. Our business has relied on the strength of the securitisation market. That market is dysfunctional."

The changes do not affect the reverse mortgage business, Bluestone Equity Release, which has recorded solid growth and is still writing new business.

Another area where Jeffery hopes to find some growth is in mortgage servicing. Last year the group brought its loan servicing in-house, after having outsourced it to AFIG for a number of years.

Jeffery said Bluestone Servicing had been set up as a standalone business and was in discussion with third parties for servicing contracts.