Speculation is mounting in Melbourne financial circles that Bendigo Bank is on the cusp of negotiating a deal to sell its half stake in the Homesafe Solutions wealth release business.
Bendigo is understood to have been in negotiations with a prospective buyer for the last three months and several industry sources told Banking Day that a sale agreement was imminent.
Commonwealth Bank and other major banks have largely abandoned the reverse mortgage market in recent years citing the complexity of contractual arrangements and the potential to destabilise family relationships.
That has left the niche market to a handful of specialist providers led by New Zealand’s Heartland Group and Melbourne-based Household Capital.
Household Capital is a relatively new entrant in the market but has established a strong presence in only a few years.
Heartland is the leading provider of equity release mortgages in Australian and its New Zealand home market.
Fitch Ratings last month affirmed the BBB long term credit rating of Heartland Group, but noted in its commentary that the company would need to raise further primary capital in coming years to meet steeper prudential capital requirements in New Zealand.
Such challenges might inhibit Heartland’s appetite for expanding through acquisition in the near term.
The prospect of the Homesafe exposure being removed from the Bendigo balance sheet is bound to win support from investment analysts and institutional investors who for many years have been concerned about the subsidiary’s tendency to complicate the earnings profile of the group and to soak up capital.
Most of Homesafe’s assets are claims over residential properties subject to wealth release contracts with borrowers.
Asset values rise when conditions in the property market are buoyant and decline when home prices depreciate.
Movements in the valuation of the property claims can result in changes to Bendigo’s prudential capital requirements.
There is an incentive for Bendigo CEO Marnie Baker to offload the business because it would automatically trigger a significant capital release that could be used to fund a share buyback or new digital growth projects.
Homesafe’s other major shareholder is Athy Pty Ltd, a private company controlled by Melbourne actuary, Peter Szabo.
Szabo founded Homesafe in 2005 through the existing joint venture arrangement with the bank.
It is believed that Mr Szabo maintains ownership of intellectual property that is deployed in the Homesafe business.