The AustralianMay 26, 2008 12:51am AEST THE AUSTRALIAN
Adele Ferguson | May 26, 2008 STRUGGLING mortgage lender Wizard Home Loans will be put up for sale this week just days after the corporate watchdog rebuked owner GE Money over its debt collection and insurance business practices.
The Australian understands that GE Money - a subsidiary of New York Stock Exchange-listed giant General Electric - will announce the sale on Wednesday at the NSW state franchisee meeting in Parramatta, Sydney.
The proposed sale comes as Wizard's founder and current chairman Mark Bouris, and his brother Adrian Bouris, seek to take control of the lender just four years after selling it and the Australian Financial Investments Group to GE Money for an estimated $500 million.
Mr Bouris is believed to have asked GE to pay him millions of dollars upfront to run the business - plus a stake in the company - so he can sell it at a later date. It is a move that could make him a second fortune.
The bid by Mr Bouris to take back control of the company echoes Kerry Packer's famous deal with Alan Bond in which he sold the Nine Network to Mr Bond for $1.05 billion and bought it back three years later for $250million.
GE is believed to be attempting to avoid having to strike a deal with Mr Bouris by finding an alternative buyer this week.
The sale, coming in the wake of tougher trading conditions sparked by the global credit crisis, is expected to generate a fraction of the money GE paid a group of shareholders, including James Packer and Mr Bouris, in 2004, for Wizard and AFIG. It signals further consolidation in the banking sector, with interested parties expected to include Westpac, which bought RAMS Home Loans last year for $140million, National Australia Bank, Wizard's chairman, Mr Bouris, and possibly Challenger Financial Group, of which Mr Packer has a 20 per cent stake.
The news follows the announcement by Westpac earlier this month that it will buy St George Bank for $19 billion.
GE Money's home lending managing director Andrew Moore recently quit to join St George.
Wizard is one of the biggest non-bank lenders, holding about 2.5 per cent of the total home loan market, which includes banks and non-banks.
Wizard franchisees have in recent months voiced their dissatisfaction with GE over the management of the organisation and tight credit policies brought on by the US sub-prime crisis that they blame for driving away customers.
The tighter credit policies imposed as a result of the global credit crisis, combined with high interest rates, have triggered the collapse or sale of some branches. In the four years since GE Money bought Wizard it has lost at least 30 branches, yet its intent had been to expand the network.
"Life started to get very difficult a year ago when GE started to tighten its credit policies," one former franchisee said.
"This hurt the amount of business you could write because just about any credit impairment was rejected outright. Before that, credit policy exceptions were a lot more flexible."
Franchisees also cite Wizard as previously being a price leader with innovative products. Since GE took control, and the sub-prime crisis emerged, they claim Wizard's competitive edge has been dulled, with business being lost to competitors.
The franchisees believe tighter credit policies ordered from the US have resulted in some good loans not being approved, with lenders then turning to Wizard's competitors.
This discontent, coupled with lower profits being generated by Wizard, are believed to have prompted GE Money to consider several proposals including a sale, the repositioning of Wizard as a broker or Mr Bouris's proposal to set up a distribution company run by him.
The NSW state conference is to be followed by meetings in Brisbane on Thursday and Melbourne on Friday, all of which are expected to be fiery with many of the franchisees planning to voice strong opposition to GE. Management at GE is believed to be hoping the sale will help pacify the branches.
As chairman of Wizard, Mr Bouris is on a package of more than $1million a year and appears as the face of Wizard in its marketing campaigns. He and his friend Mr Packer have a stake in Wizard International, which has 22 branches in four Indian cities. It is understood Mr Bouris began structuring the proposal to take back control of Wizard earlier this year and has been discussing aspects of it with some key franchisees to win support. These discussions are believed to have added to the resentment within the franchise network towards GE.
Mr Bouris's proposal was to put Wizard under one structure, called One Corp, to be fronted by him. His investment vehicle State Capital Corporation would take a stake in the new entity, along with GE and some of the key Wizard franchisees.
Wizard, GE and Mr Bouris refused to comment but a spokeswoman said Wizard would make an announcement on Wednesday and Mr Bouris would answer questions sent by The Australian on Thursday or Friday.
The Wizard network sells about 2.5 per cent of all Australian mortgages through a franchise network of about 200 branches.
The sale of Wizard comes a week after GE Money was publicly condemned by the Australian Securities and Investments Commission for breaching some enforceable undertakings in its debt collection and insurance business Hallmark. ASIC said GE Money had also "unnecessarily and unreasonably" contacted third parties of borrowers, including neighbours, colleagues and family members.
The range of GE Money borrowers subjected to the group's "inappropriate" debt collection activities is understood to extend to every division of the credit provider.
They include Wizard clients, personal loan holders, borrowers with car loans, and people holding GE credit cards, including Myer and Coles cardholders.
