Pepper goes against the grain, buys HSBC’s New Zealand home loan book

afr.com:

The New Zealand home loan market is irrational, unprofitable and ultra-competitive, major banks say. Still, that has not stopped non-bank lender Pepper Money from picking up HSBC’s mortgage book, as New Zealand’s Commerce Commission launches a probe into the banking sector.

Pepper chief executive Mario Rehayem said Australian banks were right when they argued the market was hard to crack, yet argued that the HSBC deal was still needed because it would take “three to four years” to build a portfolio as big.

“We didn’t have to compete [for] low-yield assets when we acquired this book because [it’s]something that’s already been set up,” Mr Rehayem said.

Mr Rehayem said the acquisition gave Pepper the appropriate scale to capitalise on future market opportunities, including the Commerce Commission’s probe into bank profitability. Bloomberg

The non-bank lender said late last week it would purchase HSBC’s New Zealand mortgage book, but did not disclose the value of the deal. Once finalised in late November, it will add a further $1.3 billion to Pepper’s assets under management, on top of the $18.9 billion the company disclosed in its results last month.

“We would not be acquiring a book of loans that would cost us more than what it would cost us to originate the same loans ourselves,” Mr Rehayem said, adding that the deal was negotiated wholly in-house.

He said the acquisition gave Pepper the appropriate scale to capitalise on future market opportunities, including the Commerce Commission’s probe into bank profitability.

“Whenever there is regulatory scrutiny around the banks, it gives non-banks an opportunity to shine, while the banks are busy dealing with that regulatory pressure,” he said.

Submissions to the probe are due