Rock looks for mutual mergers

The Rock Building Society is looking to mutual financial institutions as future merger partners, and appears to be looking for an alternative to acceding to any future offer from a buyer such as Bank of Queensland.

In The Rock's annual report, released yesterday, the chair, Stephen Lonie, wrote that "The Rock must remain focussed on its current business, as well as explore other alternative options."

Lonie wrote that the board "considers that The Rock particularly offers other mutual ADIs in Australia an attractive opportunity to both monetise their members' interest in the institution as well as gain the benefits of operating efficiencies."

Key challenges for The Rock, he wrote, were a lack of scale and "the continuing competitive landscape for deposit funds in Australia."

Lonie also noted that "it remains a challenge to reinvigorate the company's performance in its core activity," namely home loans. Lonie referred a couple of times to the need for The Rock to adopt more competitive pricing and product design on home loans to make them appeal to brokers and borrowers.

Lower costs are now on the board's mind, with a $5 million investment in core systems (the Bancs platform from Tata Consulting Services) largely bedded down.

The annual report also adopts a tone of optimism over a controversial investment in a $4 million collateralised debt obligation. Lonie wrote that while the investment "remains at risk as at 30 June 2010, there appears a reasonable expectation that this investment will be recovered in full in December 2010."