Aussie’s strong growth plan
By Amanda Gome
John Symond’s Aussie Home Loans has continued to grow despite ructions in the mortgage market. His advice? Don’t be a victim, especially as circumstances change and customer needs evolve. He tells how he positioned Aussie as an organisation that sees change as a survive and thrive tool.
Well-known entrepreneur John Symond has just sold a stake of Aussie Home Loans to the Commonwealth Bank. He tells Amanda Gome about his plans for Aussie and the pain that businesses will experience from the banks tightening credit – and even gives some sound advice to business owners.
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Amanda Gome: The Commonwealth Bank bought 33%. What did they pay for it?
John Symond: Oh, I can't tell you that. No, that's confidential; but they paid sufficiently enough to entice me to be happy to have them as a minority shareholder.
Now how is it going to work? The bank will have a minority board representation?
Yes, the bank will have a minority representation on the board. They'll have no involvement with the day-to-day operations. Aussie is separate. We’ll always remain separate and I'll be in full control of the operations of the business. Commonwealth Bank have taken a strategic investment in Aussie. They recognise that we've got a fantastic consumer brand and they know that notwithstanding the credit crunch that Aussie is best placed of all the non-banks to grow and take advantage of the opportunities out there.
Is it likely they'll end up wholly-owning your business?
No, because part of the transaction is that they don't have any option or right to acquire any further holding. That was a fundamental requirement and the independence as well.
How are you going to be working with them?
They see Aussie as a growing distribution base. It will also give them a chance to pitch for product manufacturer. We are signing an agreement with the AMP Bank for mortgage protection for our large customer base. CommBank also wants to pitch for manufacturing products that Aussie can provide to our growing customer base. Any other financial institution can pitch for that business because of the independent nature of the transaction. We will maintain our existing strong relationships with other financial institutions.
We deal with all the banks on our mortgage broking model. We deal with other institutions like CGU for some of the insurance. AMP for mortgage protection, the ANZ assists us with the back room of our credit card, and GE for parts of our personal loan business, so we'll build on those relationships and Commonwealth Bank is very keen to get a crack at being part of that great distribution potential.
Where do you see the big growth opportunities?
One of the important aspects of the transaction with the CommBank is they will provide Aussie Home Loans with a wholesale facility where we can ramp up the Aussie Home Loans part of our business and provide some very competitive mortgage products.
We've done that for 16½ years, but in the last six months it has been very small. It is a minor part of our business. Seven years ago we changed to that of a large mortgage broking business. We provide about $1 billion in new home loans a month. The Aussie Home Loans business should comprise about 10% to 15% of that, however in recent months it is down to only 3% or 4%, so that's one area, wholesale funding, when the global credit markets are shut down. So that's a huge advantage.
The other is of course as a strong shareholder with a big balance sheet. If we believe that there are some non-banks out there who have got a good operation but are struggling, looking for a big brother, we may make some acquisitions and utilise the strong balance sheet of the Commonwealth Bank to help fund that. We can also provide new products.
Which ones in particular?
Well we may look at different products like deposit products, transaction accounts, all in the name of Aussie Home Loans, so there are great opportunities like that and we now need to explore what range of products do we believe that we can source not just from the broader marketplace but more specifically what Commonwealth Bank can do to assist the growth of Aussie.
Can you see any demographic changes further out that you think will flow into new opportunities?
The Commonwealth Bank as an investor wants Aussie to really spread our good great consumer brand to far reaching areas beyond the eastern seaboard, and WA and SA, out of the cities into the major regional centres.
You're 60 years old. You've stepped aside to focus as chairman on growth opportunities and strategy. How are you going doing that? Are you missing being hands on?
No, well the reason I did that, I knew that our negotiations with the Commonwealth Bank has been going for a number of months and I knew that the closer we got to formalising it, I wanted to free myself up to make sure that I could devote a lot of time on the growth of the business rather than being bogged down on the day-to-day operations. I've done that for 16½ years and the real reason for moving to an executive chairman role was to free me up to make sure that we can make the right decision, careful commercial decisions, to seize on some wonderful opportunities out there with the consolidation of the non-bank sector, and that's what I'm going to be devoting most of my time on.
So you'll stay on as executive chairman?
Oh absolutely. Still very much in control of the company but more time devoted to the growth side of the business.
Now looking back, and if you could change parts of the strategy… what tips have you got for other entrepreneurs about the way you've built the business?
Entrepreneurs and business owners must realise that circumstances change, customer needs change. There will be events that nobody has predicted and that's evidenced with the current credit crunch fallout which is having wide reaching effects globally.
You really need to think change and adapt very, very quickly. I saw the credit crunch initially as a huge concern and we've turned that into an advantage for us. That's without the Commonwealth Bank involvement, and we then had to work out how could we absolutely leverage our strong position and we worked very quickly, and the good thing with the Commonwealth Bank was they had a strong appetite for investment with Aussie because they approached me and I had never been out to look at selling part or whole of the business.
You need to be on the lookout for ways to grow your business rather than just organically, and that really does mean that you need strong business relationships and partnerships with those organisations that share the same vision synergistically, and you need to understand very clearly those areas of your business that would benefit by forging strong relationships.
You've also got to be in a position to adjust very quickly to changing market circumstances, and fortunately for us Aussie is an organisation that is used to change. We embrace change. We always have. We always look for opportunities and the positive nature of change rather than be a victim of change, which unfortunately many organisations succumb to.
Do you think that going forward we're going to see a lot of banks reviewing companies in October, November and there might be some bad news for companies and if so what should they do?
Well the banks like all businesses will heed lessons out of what was done very well over the last five or six years. Those decisions have turned out not to be really good decisions.
I do think that credit has been too free, not just to some consumers who were buying homes without deposits but also businesses who have over-extended themselves so banks need to tighten up their lending criteria because they are now starting to see losses and arrears jump and banks… it's cyclical and banks will tighten up credit whilst the economy remains in a slow down stage and businesses will find it more difficult to access capital and they will find that they need to get their ship in order. All businesses have to do that.
The first six months of the credit crunch fall out we had to right the ship… we made sure that we stripped unnecessary expenditure. We straightened the ship to ensure that the fundamentals were sound.
How long do you think this current period of the banks tightening up might last?
Well I think that the fallout of the credit crunch is now starting to bite and unfortunately we're in for a pretty tough time with the Australian economy over the next, I think, 12 to 24 months. I'm hopeful that the economy will remain solid and we won't go into recession, but that's not a guarantee so it means that we've all got to be very careful with the way we run our business and try to ensure that our debt levels aren't out of kilter and too much to help us afford the high interest rates. The good news is interest rates are on the way down.
And do you think they'll continue to go down?
I do believe... I've been saying for three months that we're at the top of a cycle and hopefully interest rates will now start their way down and I'm confident over the next 12 months our lending rates and wholesale rates will be probably about 1.5% cheaper than it is today.
So what's your strategy going forward?
Our strategy is to be very careful and to make sure that you don't wander too far from what your core business is. You do need to take some risk but ensure that they risks are very well calculated. You don't want to risk everything but you do have to take an element of risk. There's nothing that's 100% guaranteed and you look for opportunities.
There's always opportunities in challenging times and you've got to find out where those opportunities are for you in the type of business you're in.
One way of seizing some opportunities is to look for strong ethical business partnerships that are strong in areas that you're not so strong on and make sure that the synergies that you're looking for and the vision you're looking for in partnerships are sustainable.
It's no good going into a relationship as a bandaid job where it's good for today but turns out a problem for tomorrow, so you really do need, I believe, a strong focus on growing business relationships because other businesses may have technology. They may have product services that can complement your business and you need to manage those partnerships once you do establish them. I've found that it's all very well to enter into outsourcing arrangements, new business arrangements but the real way to make those succeed is to manage those relationships.
Now lastly your loan book, you've got a $24 billion book. What's your aim financially?
Oh look I think over the next three to five years I can see Aussie doubling its size. I can see us being a far more significant player particularly in the non-bank sector. The non-bank sector will have a significant amount of consolidation and rationalisation.
Aussie is one of the organisations that is best positioned to take advantage of that. We will probably acquire a few of the very good non-bank players that are looking for support. A number of the organisations out there who are really really struggling now may not survive and a lot of the smaller organisations may not survive.
But I do believe once the economy recovers and the credit crunch globally abates to a more normal situation I think the non bank sector, whilst it will be smaller in terms of numbers it will be far stronger and more credible and the players who will be left there will have the infrastructure that will provide consumers with a far better service and more credibility and integrity.
This is an edited transcript