Material shareholders in non-bank mortgage funders, listed and unlisted, are exploring options to liquidate their stakes, setting the stage for a round of consolidation in the non-bank sector.
KKR, which holds a 60.6 per cent stake in Pepper Money, is believed to be well advanced in its search for the least painful exit from Pepper it can muster.
Chatter around Pepper and KKR’s thinking have floated around for the best part of a year, and quitting its holding has not necessarily been the favoured option.
Banking Day is hearing KKR is reaching clarity in its thinking around Pepper Money.
In short: move up, move down or move out. The latter is the probable option and expect to hear from KKR and Pepper Money pretty soon.
Even more certain is that Cerberus Capital is open to bids for part, and preferably the whole of Bluestone.
Cerberus acquired Bluestone from another VC fund as recently as 2018.
Since then Cerberus has taken a shine to the openness of Australia’s banking product market, acquiring two niche non-bank business funders over the last three years - Angle Finance and Axsesstoday.
Word is Cerberus wish to redeploy their capital toward these alternative lenders and arrange a clean sale of Bluestone.
Bluestone and Pepper have broadly corresponding business models and similar motives to afford their owners a decent exit.
In combination with Liberty Financial (also ASX-listed) and others, this pair disrupted mortgage finance in Australia by widely offering sub-prime mortgages. These are also styled as non-conforming.
They sure are, with Pepper and Bluestone managing mortgage pools bloated by high loan-to-valuation ratios, and loans frequently advanced to the self-employed, a cohort whose incomes are in peril.
Balancing this are the prime mortgage pools, which in Pepper’s case was 55 per cent at June 2022. Its overall book growth was four times system.
Given declines in residential prices, write-offs and credit impairment charges at Bluestone Mortgages and Pepper Money will be challenging and over the next couple of years.
Same goes for Liberty Financial, though it has a more diversified lending book.