Might see a little jump this...

Might see a little jump this morning.


http://www.smh.com.au/news/business/rams-woes-intensify-as-investors-flee/2007/10/03/1191091194045.html

INVESTORS fled home loan provider RAMS yesterday as the market came to terms with the not-so-golden handcuffs placed on the company in the "rescue" by Westpac.

Its shares closed at 48c yesterday, down 18c or 27 per cent for the day, as investors broadly discounted the likelihood of a rival offer. There was a turnover of 100 million shares. The continuing spiral marks a fall of more than 80 per cent for investors who paid $2.50 a share for the business before its listing on July 27.

Under the deal with Westpac, RAMS sells its brand to the bank, which takes over its 92-outlet mortgage broking network for $140 million. RAMS is left with its $14.5 billion loan book in "run-off".

An analyst with Merrill Lynch, Andrew Lyons, yesterday valued the Westpac offer at 40c a share for the franchise business.

Illustrating the favourable terms of the deal for Westpac, Mr Lyons put a value of 65c a share on the same business. He said in a note that he "would not rule out another counter-bid for the RAMS franchise".

He valued the remaining loans business within RAMS at 55c a share, or $231 million.

A major problem for RAMS shareholders hoping for a rival on-market offer are the two other legs to the Westpac deal: $500 million to enable RAMS brokers to continue lending between November 15 and when the deal is completed in January, and a $1.5 billion contribution to help RAMS refinance $6 billion in commercial paper.

Both contributions seek to address two problems threatening the survival of RAMS - its ability to keep lending and its ability to refinance a major portion of its loan book - and impose extremely high hurdles on any likely rival bid trumping Westpac's offer.

RAMS's executives, including the company's founder, John Kinghorn, who made more than $600 million from the float, have said the business faced closing its doors to new business without Westpac's offer, with devastating consequences.

RAMS announced yesterday that it had received commitments for $300 million in mortgage-backed securities, on a more expensive basis than funding it received before it was caught in a credit squeeze.

RAMS offered investors an additional return of more than half a per cent above a benchmark rate, almost three times higher than the additional return RAMS offered when it issued mortgage-backed securities in June.

The higher pricing for funding of new loans it intends to write in the next three weeks highlights the challenges RAMS faces when it attempts to refinance $10 billion in short-term financing for loans it has written.

It will almost certainly face lender demands for higher rates, which would then be passed on to customers.