Can CBA maintain the Aussie charm?

Having been involved, as head of strategy, in the Commonwealth Bank's original decision to invest in John Symond's Aussie Home Loans group at the onset of the financial crisis Ian Narev presumably understands the risks of moving to outright control of the maverick financial services group.

CBA announced today that it had reached an agreement with Symond, subject to clearance from the Australian Competition and Consumer Commission, to increase its shareholding in Aussie from 33 per cent to 80 per cent, with the right to subsequently move to 100 per cent.

Narev, now CBA's chief executive, would be well aware that the original deal which brought the biggest of the Australian banks next to its best-known non-bank challenger was framed quite sensitively to protect both the perception and reality of Aussie's independence.

That original deal, which also saw CBA help fund Aussie's acquisition of the distribution network of the other major challenger, Wizard (CBA picked up Wizard's home loan book) included a legal undertaking that CBA wouldn't interfere with the day-to-day operations of the business.

Essentially CBA became an investor in Aussie and a financier of its business, enabling Aussie to return to its original model, abandoned ahead of the crisis when Symond became concerned about his group's reliance on securitisation markets, of originating its own product as well as broking bank and non-bank products.

It appears to have been a very successful arrangement, with Aussie generating profits of more than $50 million last year off a loan book of more than $38 billion and 250,000 customers. It has more than 750 mortgage brokers and 145 outlets and appears to be still in growth mode.

The arms-length nature of the relationship has enabled Symond to maintain the "challenger" brand he established two decades ago when he launched Aussie and ultimately transformed the competitive landscape in banking, carving several hundred basis points off the major banks' home loan margins.

There is a significant risk that subsuming Aussie into the vast CBA organisation, no matter how well-intentioned the parties might be, will impact Aussie's culture and perceptions of it in the market and among CBA's competitors, bank and non-bank.

Narev is, of course, more than sophisticated enough to recognise that risk so it will be interesting to see what he does to manage it, particularly after CBA moves to complete ownership, which it inevitably will.

In the post-crisis period most of the banks have acquired or established secondary brands, with Westpac building its business model on its collection of regional brands overlaid by the Westpac brand and under-pinned by its platforms and funding. It also owns the RAMS brand, while and NAB created UBank. CBA itself also owns BankWest.

With Aussie about to be consolidated into CBA, further increasing the already intense concentration of banking activity post-crisis among the four majors, today's announcement will be greeted enthusiastically by Mark Bouris, the founder of Wizard now bulking up his new vehicle, Yellow Brick Road.

It is ironic that Macquarie Bank was the original arranger of funding for Aussie back in the 1990s when it first started having an impact on the sector. Macquarie is now using its ability to gather funds cheaply from the cash management accounts financial advisers use to manage their clients' funds to back YBR, which is distributing white-labelled mortgages and other financial products manufactured and managed by Macquarie.

While the arrangement is low-key and has been downplayed by Macquarie, the attractions of deploying its excess capital and cheap liquidity in assets with low risk-weightings using YBR as its marketing and distribution vehicle is compelling. YBR also has a strong relationship with Nine Network – and a lot of unused advertising inventory it gained as part of a deal under which Nine emerged with a substantial shareholding in the company.

Bouris, having been there and done that in the past, has very ambitious goals for YBR and the potential to exploit the absorption of a high-profile non-bank competitor into a major bank won't be lost on him.

Narev would be aware of the potential for Bouris to use his visibility to broadcast Aussie's new ownership and elevate YBR's status as a challenger brand – CBA is said to be wary of the relationship between YBR and Nine – but presumably believes the upside in Aussie and the incentive and ability to expand its reach and offering under CBA's control and direction overwhelms any of the risks.