GE Money Australia and New Zealand will sell its Wizard Home Loans brand and franchise network in Australia to Aussie Home Loans for an undisclosed amount.
As part of the deal, Commonwealth Bank of Australia will acquire up to $4 billion of mortgages originated by Wizard, GE Money said in a statement on Wednesday.
GE Money will continue to service all existing loans that it is retaining in the normal way, GE Money said in a statement.
GE Money’s local president and chief executive Mike Cutter said the agreement was the right decision for GE Money.
”This is a complex transaction, involving a brand, a distribution network, personnel and a portion of the loan book.”
Aussie Home Loans will buy the franchise distribution network of Wizard .. of which CBA owns a 33% stake.
Aussie says the share covers over 160 outlets in city and regional areas around Australia and over 300 mortgage advisers.
Aussie’s executive chairman John Symond says the moves great news for the consumer amid a shrinking non-bank sector.
GE Money’s parent, Connecticut-based General Electric, had been on a campaign to offload assets within its financial services arm this year after suffering heavy falls in group earnings from profit declines at GE Money.
GE Money said the deal would position its local arm to focus more on areas of core strength – retail store finance, credit cards, personal loans and insurance, sold through our retail partners, branches and online direct channels.
”We will take advantage of the strong business opportunities here and will continue to provide services to our partners and our more than three million customers in Australia,” Mr Cutter said.
The sale of Wizard to Aussie Home Loans is expected to be completed by the end of February 2009, with transition details to be determined in January, GE Money said.
CBA said the Wizard portfolio it will acquire comprises prime mortgages that meet the bank’s lending criteria and are 100% mortgage insured.
The mortgages have a maximum loan to valuation ratio of 90%, CBA said in a statement.
The bank will acquire $2 billion of loans by the end of February 2009, and is in discussions with GE Money over acquiring an additional $2 billion of loans.
If CBA acquires $4 billion of loans, this will have ”little impact” on the bank’s tier 1 capital ratio – currently standing at 8.5% – nor the bank’s 2009 funding program, CBA said.
Meanwhile, GE Money’s announcement hoses down last week’s speculation that a deal was imminent with National Australia Bank (NAB) over the acquisition of Wizard.
On December 17 NAB said it was in advanced discussions to acquire the mortgage lender’s brand name and Australian distribution network for an undisclosed price from GE Money.
A final decision on the talks has yet to be made, NAB said.
On Wednesday NAB said its offer to purchase these assets was not accepted and discussions have ended.