Higher funding costs for RHG

RHG confirmed that it is paying higher funding costs to the four banks that are the funders of the warehouses and that are in turn the largest component of its $7.7 billion home loan book. This book is in run off, being the back book from the days when the company was known as Rams Home Loans before selling that brand to Westpac in late 2007.

In the annual report John Kinghorn, chair of the board of directors, wrote that RHG "must continue to seek extension of its warehouse facilities. The alternative is to default and lose the mortgages. To lose the mortgages is to lose the future income from those mortgages."

RHG did not spell out any more detail on its higher funding costs and reiterated the projection made in late August of an increase in net tangible assets over the year to June 2010 of between $55 million and $65 million.

Kinghorn also used the one-page chairman's report to project 2011 as the time at which RHG will cease to generate earnings, taking into account the run off in the book of 2.82 per cent a month. This repayment rate is above average but unsurprising given the above market pricing of RHG's loans.

In 2011 the board of the company, which will by that stage be a pure cash box, will choose between returning capital and investing in some other business.

The board also confirmed that it will not support the election of a couple of activist investors to its board. Steven Johnson and Gregory Hoffman, both principals of the newsletter The Intelligent Investor, have been nominated.

According to the board's view, published in the notice of meeting, the two lack experience managing a substantial business and as directors of a listed company.