Administrator blames historic debt burden but tough competition for brokers could have been final straw for aggregator
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Administrator blames historic debt burden but tough competition for brokers could have been final straw for aggregator
Aggregator eChoice entered voluntary administration yesterday, as the company’s creditor Welas declared “it could no longer continue to support the Group in its current form”.
Welas now intend to sell the business and claim one major financial institution is already interested in acquiring the business, arguing that “excluding the historical debt burden, the business remains a viable opportunity in the hands of a new owner.”
The latest available figures put eChoice’s debt burden at $45.4 million as of December 2016, incurring debt repayments of $11.6m
The administrators have not been appointed over eChoice’s aggregation and home loans business. Blake Buchanan, general manager of eChoice aggregation, told MPA-sister title Australian Broker that there would be “business as usual for our aggregation, broker networks and commissions.”
However, if eChoice was to be sold, the aggregation and home loans business would be part of that sale and potentially subject to changes by the new owner.
Historical debt burden
The first job for administrators Rodgers Reidy will be to address eChoice’s historic debt burden.
eChoice have struggled to reduce their debt, reducing it by just $1.3m over six months, to a total of $46.7m in December. This was despite the sale of eChoice’s wholesale mortgage management business for $11m, completed in March this year.
The reason is poor performance. Whilst eChoice’s settlement volume increased by 4% in the six months to December 2016, eChoice’s margin fell and the Group made a loss.
At the time, the company told shareholders that “these losses are a combination of an ageing loan book, increased run off and replenishment coming at lower commission due to an increase in competition and retention of brokers.” Another statement also blamed the “significant increase in competition to retain brokers, resulting in increased commissions” for reducing eChoice’s income.
eChoice’s response to those losses was to focus on in-house brokers, but warned that “this requires a considerable level of further investment to achieve scale.”
Competition for brokers
eChoice’s struggle to retain its brokers may be shared by other aggregators.
Although broker numbers are growing only a small proportion of brokers write high volumes of loans, the MFAA’s recent Industry Intelligence Service Report suggests.
Just a third (34%) settle more than $10m in residential loans per annum, according to the MFAA. On the other hand, the proportion of brokers settling $4m or less increased from the previous six months, and 17% of brokers didn’t lodge a loan at all.
It may also be difficult for smaller aggregators to tempt successful brokers away from larger competitors. In MPA’s latest Brokers on Aggregators report, just 10% of brokers said they were likely to leave their aggregator in the next 12 months.
Aggregator eChoice entered voluntary administration yesterday, as the company’s creditor Welas declared “it could no longer continue to support the Group in its current form”.
Welas now intend to sell the business and claim one major financial institution is already interested in acquiring the business, arguing that “excluding the historical debt burden, the business remains a viable opportunity in the hands of a new owner.”
The latest available figures put eChoice’s debt burden at $45.4 million as of December 2016, incurring debt repayments of $11.6m
The administrators have not been appointed over eChoice’s aggregation and home loans business. Blake Buchanan, general manager of eChoice aggregation, told MPA-sister title Australian Broker that there would be “business as usual for our aggregation, broker networks and commissions.”
However, if eChoice was to be sold, the aggregation and home loans business would be part of that sale and potentially subject to changes by the new owner.
Historical debt burden
The first job for administrators Rodgers Reidy will be to address eChoice’s historic debt burden.
eChoice have struggled to reduce their debt, reducing it by just $1.3m over six months, to a total of $46.7m in December. This was despite the sale of eChoice’s wholesale mortgage management business for $11m, completed in March this year.
The reason is poor performance. Whilst eChoice’s settlement volume increased by 4% in the six months to December 2016, eChoice’s margin fell and the Group made a loss.
At the time, the company told shareholders that “these losses are a combination of an ageing loan book, increased run off and replenishment coming at lower commission due to an increase in competition and retention of brokers.” Another statement also blamed the “significant increase in competition to retain brokers, resulting in increased commissions” for reducing eChoice’s income.
eChoice’s response to those losses was to focus on in-house brokers, but warned that “this requires a considerable level of further investment to achieve scale.”
Competition for brokers
eChoice’s struggle to retain its brokers may be shared by other aggregators.
Although broker numbers are growing only a small proportion of brokers write high volumes of loans, the MFAA’s recent Industry Intelligence Service Report suggests.
Just a third (34%) settle more than $10m in residential loans per annum, according to the MFAA. On the other hand, the proportion of brokers settling $4m or less increased from the previous six months, and 17% of brokers didn’t lodge a loan at all.
It may also be difficult for smaller aggregators to tempt successful brokers away from larger competitors. In MPA’s latest Brokers on Aggregators report, just 10% of brokers said they were likely to leave their aggregator in the next 12 months.
