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Bluestone’s second wind

Last Updated: Monday, 7 April 2008

By Amanda Gome

The fate of capital markets has forced low-doc lender Bluestone Group’s Alistair Jeffery’s hand. He is effectively starting again with new ownership and a new business model.

In 2003, entrepreneur Alistair Jeffery did a risk management plan for Bluestone Group, his three-year-old specialist lender that focused on non-conforming mortgages such as low doc loans and reverse loans to retirees.

He rated the collapse of the capital markets a fatal blow to the company, but very unlikely to happen. Of course the worst has now occurred and put Jeffery’s business through the wringer.

As one of the biggest Australian victims of the US sub-prime fallout, Bluestone has been forced to halve staff numbers and has lost a big investor because the money that Bluestone lent to its customers has dried up.

So how has Jeffery set about rebuilding? He tells Amanda Gome what it feels like to be running a start-up again, and how he is risking his personal wealth once again – but why it is easier the second time around.

He is happy to answer your questions. Email feedback@smartcompany.com.au

Amanda Gome: You are in a highly risky business. But you always told us that your loans were securitised, which meant you slept at night. Now the securitisation market has collapsed. Could you have seen this coming?

Alistair Jeffery: We tried. We had an offsite in 2003 and listed risk factors, and graded them in a matrix of low, medium, high and fatal. There were two items in the fatal; one was the capital markets shutting down. We rated it a very low risk.

When was it clear that Bluestone was in trouble?

We could see that origination was becoming very difficult in July last year. I was in the US and it became very clear that the non-conforming markets were shutting down at the end of last year.

We got to a position where we approached the shareholders to ask whether they were interested in the new direction or an exit.

Six weeks ago we said to them here is the new direction of business.

What is the new direction? You are relying on growth that does not rely on capital market funding?

We are raising $5 million to $10 million for an aggressive push in a new direction.

The focus is on a subsidiary called Bluestone Servicing that has $3 billion of loans for mainly self employed customers. It handles customer inquiries, internet banking services. Also arrears management is another portion of Bluestone Servicing.

We built it in 2005, invested $5 million and it now makes a $3.5 million profit; it’s a cracking business.

The second part of the business will be looking after other people’s loans portfolios. We are looking for another portfolio of loans that we didn’t originate but we could look after.