CBA kicks tyres at Aussie Home Loans

The Financial Review reports that Commonwealth Bank is considering the purchase of a stake of between 30 per cent and 40 per cent in Aussie Home Loans. The purchase may value Aussie, which is primarily a mortgage broker, at more than $200 million according to the newspaper.

Aussie two weeks ago hired Stephen Porges (most recently CEO of Newcastle Permanent Building Society) as its new chief executive, replacing James Symond. John Symond, the founder of the firm, is to remain executive chairman of the firm under that plan.

At the time John Symond told this newsletter to stop writing that the business was for sale.

Commonwealth Bank has recently been linked as potential buyer of a number of retail and investment banking businesses that are on the market, including BankWest, HBOS Australia and Wizard Home Loans. The bank last week pulled back from negotiations to buy ABN Amro Australia.

Aussie reported a net profit of $19.7 million in 2006 and $20.3 million in 2007. The broker's profit must have fallen since then, given the decline in growth in the home loan market, and may be likely to fall further given the cuts to commissions paid to mortgage brokers.

Aussie is thought to be looking to negotiate fresh funding lines from banks with which to rev up lending in its own name as a mortgage manager - Aussie's original niche in the 1990s - and to reduce its activities as a mortgage broker. Aussie has in recent years sourced funding for its own-name lending from Macquarie and ANZ.

An equity tie-up with CBA may make sense in that context.

Mortgage Choice, the only ASX listed firm comparable to Aussie, has a market capitalisation of $127 million and a broadly similar mortgage portfolio. Westpac paid $129 million for the brand and franchise network of Rams Home Loans late last year, a deal that excluded any income or management rights connected to the stock of home loans originated by Rams prior to then.