Is it a coincidence that the ink had barely dried on Commonwealth Bank’s move to outright control of John Symond’s Aussie Home Loans when Macquarie Group took up a placement in emerging financial services brand Yellow Brick Road? Probably, but it is a convenient one.
It is known that Commonwealth was concerned about the tie-up between Mark Bouris’ YBR and Macquarie earlier this year when they announced a partnership agreement under which YBR will distribute white-labelled mortgages and other financial products manufactured and managed by Macquarie.
Macquarie, which had propelled the growth of Aussie into a major independent force in the 1990s by providing funding via its PUMA securitisation vehicle, will also give YBR access to competitive funding from the cheap deposits it holds in its cash management account product, a platform of choice for financial advisers to manage client funds.
The partnership between Macquarie and the fledgling but ambitious and well-connected YBR was viewed, inside Macquarie and externally, as the start of an aggressive push into retail financial services and the creation of a "fifth pillar" within the highly-consolidated and concentrated banking sector.
The demise of the satellite listed infrastructure model, and a more cautious approach to taking principal positions – and the extra capital and liquidity it is holding – makes annuity-style and agency-type activities far more attractive to Macquarie than they were in the halcyon pre-crisis days.
From the moment, at the very start of the GFC, Commonwealth acquired 33 per cent of Aussie it was destined to eventually move to control and perhaps the only surprise this week was that it chose to move to 80 per cent, with an ability to move to 100 per cent in time, rather than something around the 50 per cent level which would have conferred control but perhaps preserved the appearance of independence for Aussie.
Certainly that move straight to 80 per cent appears to have surprised and unsettled Macquarie, which has been using Aussie to distribute a significant volume of its retail product.
CBA would be concerned about the potential of the Macquarie/YBR relationship and the presence of Nine Entertainment on the YBR register, a position paid for in part with advertising inventory that YBR is yet to draw on.
With Bouris’ marketing ability and his track record of growing a financial services business (Wizard Home Loans), Nine as a platform to broadcast the brand and Macquarie’s financial muscle and creativity YBR might be tiny today (a market capitalisation of around $70 million) but it does represent a retail banking threat.
It was CBA which in the 1990s was the first of the major banks to respond to John Symond by slashing its home loan margins to compete, more than 200 basis points of margin that has never been recovered.
Did CBA decide to move to absolute, near-total control of Aussie and risk losing the independent character of the brand because of the YBR/Macquarie/Nine tie-up? Perhaps, although only those inside CBA would know.
Is the placement to Macquarie (and a smaller placement to the family of YBR adviser Christopher Joye, who helped broke the original deal with Macquarie) a reaction to the CBA move on Aussie?
Almost certainly not, although it may well have confirmed the appeal of the deal for Macquarie, which would realise that its flow through the Aussie channel could be threatened by CBA’s increased stake.
The original deal last month was supposed to contain an equity layer, but didn’t. The placement of about about 8.5 per cent of YBR to Macquarie and 1.5 per cent to Joye announced today was designed to cement that alliance. For whatever reason, there was a delay between intent and execution.
The Macquarie stake is, perhaps, somewhat smaller than one might have expected and, one assumes, what Macquarie might originally have envisaged.
Bouris would no doubt be keen to ensure his brand is perceived as independent of the major banks and that he can now use that as a marketing message against CBA and its Aussie subsidiary. He would also, presumably, be keen to ensure he maintains control and doesn’t give Macquarie a platform to edge its way towards effective control.
Macquarie isn’t generally renowned for being a passive investor, although in this instance and at this stage in the relationship and YBR’s short history the ability (assuming YBR can executive its strategy) to grow its effective retail presence behind the YBR brand is far more important than the size of the equity stake.
At some later date, if YBR is successful, Macquarie may need to lift the holding to protect its exposure to YBR but it could be counter-productive to bring a bank brand next to YBR’s at this point.
It wouldn’t be surprising if Bouris brought in other allies – James Packer is a mate of both Bouris and Nine's David Gyngell – to add more firepower and credibility to YBR’s challenger ambitions. Packer was an investor in Wizard and, despite his withdrawal from financial services and media, might see it purely as a small investment and as support for his friends.
Bouris would have seen the CBA acquisition of Aussie as an opportunity to ratchet up the aggression and ambition, despite CBA and Symond’s confidence that the perception of Aussie as an independent non-bank brand can be maintained.
The issue of secondary brands owned by the major banks is starting to become a focus for the non-banks, which are pushing for the relationships between the four majors and their "other" brands to be made more explicit to consumers. Bouris has the visibility and marketing skills to elevate that campaign and would see the CBA move as an early Christmas present.
The timing of the two sets of announcements might be coincidentally close but does help to establish the battle lines and ground for the next attempted non-bank assault on the big banks’ retail banking stronghold.