Westpac Sets About Rams Rehabilitation With Rate Cut

Sydney Morning Herald

Saturday January 5, 2008

Danny John

WESTPAC yesterday offered a sign of how it will use its newly acquired RAMS home loans business to challenge its rivals when it cut the high-profile brand's standard mortgage rate to below the level of the rise just announced by National Australia Bank.

After two days of rates movements underlining the volatility in the mortgage market, the basic loan offered by RAMS was reduced from 8.82 per cent to a more competitive 8.65 per cent as Westpac gave its new subsidiary access to cheaper funds through its deposit base.

The reduction undercut NAB's newly raised rate of 8.69 per cent, pushed through in response to the same global credit crunch that forced a financially crippled RAMS to sell its name and retail franchise business to Westpac. The bank finally took control of the brand yesterday after announcing the $140 million purchase in October. It immediately set about trying to reverse the damage caused by the crisis that ended RAMS's access to cheap sources of finance in US credit markets.

In its desperate need to refinance about $5.5 billion of short-term credit, RAMS had raised its own rates to recover part of the cost of higher priced loans. The renamed RHG Group indicated last week that it may be able to tap $4.25 billion of locally sourced money to replace most of those loans. However, it has yet to provide all the guarantees required by its lenders as the February 11 refinancing deadline approaches.

As for the brand that once proved a major competitor to the leading banks, Westpac will underwrite a much-needed marketing campaign to restore confidence in its operations. The Westpac-owned RAMS will be unable to rely on cheaper mortgage rates to attract business, as it did so successfully in the past, given that the rate for its standard package is still 0.08 percentage points higher than comparable offers from its new parent, and from competitors Commonwealth Bank and ANZ.

However, yesterday's cut was made in the expectation that Commonwealth Bank and ANZ will in the next few days raise their mortgage rates by at least the same amount as NAB has, or possibly even more. ANZ yesterday gave a thinly disguised hint of the increase it is considering for its standard variable offering when it announced its fixed-rate mortgages for between one and five years will on Monday go up by 0.25 percentage points to 8.54 per cent - just below its basic rate.

Analysts said it was possible the new RAMS rate could be held at 8.65 per cent as Westpac - equally under pressure from higher global credit costs - is forced into line with its rivals on mortgage rates.

© 2008 Sydney Morning Herald

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