Acquisition of $1.4 billion portfolio subject to government approval
Non-bank lender Pepper Money has signed a binding agreement with Hongkong and Shanghai Banking Corporation Limited to acquire its prime residential home loans portfolio in New Zealand.
In an statement to the Australian Stock Exchange (ASX) released on Friday, Pepper Money said it anticipated the transaction with HSBC would be completed in late November 2023 and was subject to the approval of the New Zealand Overseas Investment Office.
Upon completion, “Pepper Money and HSBC will work together to ensure a smooth and efficient transition for existing customers”, the statement read.
Pepper Money’s ASX announcement provides some assurance for HSBC’s New Zealand home loan customers, after the global bank declared in June that it would exit its wealth and personal banking business in NZ.
The withdrawal would take the form of a phased wind-down, expected to take place over several years.
In a statement released on June 13, HSBC said the decision followed a “strategic review” of the business and that it reflected the “rapidly evolving commercial, regulatory and technology environment for running a sustainable retail business”.
Pepper Money said the mortgages portfolio being acquired from HSBC was expected, at completion, to be approximately NZ$1.4 billion in outstanding balance, adding further scale to Pepper Money’s existing New Zealand home loan business.
Pepper Money’s assets under management as of June 30, 2023, stood at A$18.9bn.
Acquisition aimed at boosting Pepper Money’s growth in NZ
The lender has been servicing mortgages in New Zealand since 2011 when it acquired GE Capital’s Australian and New Zealand Home Lending business. Pepper Money is part of a small but growing cohort of non-banks in New Zealand that are appealing to mortgage advisers and their clients due to their wider borrower and lending profile.
Since 2011, Pepper Money said it had continued to grow its presence in the New Zealand market with establishment of an end-to-end mortgage platform and nationwide rollout of a full suite of residential home loans (prime, near prime and specialist loans) in 2019.
Pepper Money said it would fund the HSBC transaction in a similar way to which it funds loan origination activity, “and as we have funded other loan book acquisition in the past, namely a combination of senior and mezzanine funding with Pepper Money contributing the first loss equity”.
“The portfolio being acquired is a prime, seasoned and well performing portfolio, and the level of first loss required reflects this,” the non-bank said.
Pepper Money CEO Mario Rehayem (pictured above) said today’s announcement of Pepper Money’s agreement to acquire HSBC’s NZ$1.4bn mortgage portfolio was a further step in its growth strategy.
“It is a testament to the ongoing diversification of Pepper Money’s revenue streams,” Rehayem said.
“Pepper Money has continually demonstrated our strong capabilities in loan portfolio acquisition and management, over 23+ years, and this acquisition will see the business continue to build scale in New Zealand, a market which we understand well having serviced mortgages and delivered compelling customer service since 2011.”
HSBC releases statement
In a media release issued on Friday, HSBC confirmed the transaction with Pepper Money.
“The sale of the mortgage portfolio to Pepper Money will ensure our customers have continued financial solutions and support,” HSBC said.
It said the mortgage portfolio sale was part of the wind-down of HSBC’s wealth and personal banking business in New Zealand, which was announced in June 2023.
“The wind-down of the rest of the WPB business will continue in phases with adjustments made to accommodate the sale of the mortgage portfolio,” HSBC said.
“HSBC will continue to operate its wholesale banking business, which includes commercial banking and financial institutions and government, along with its markets and securities services business.
“Each of these businesses is primarily focused on supporting internationally oriented clients that benefit from the HSBC Group’s unique global network and international financial capabilities.”
When HSBC stated that in June that it was exiting wealth and personal banking business in New Zealand, there were some concerns in the industry about what this would mean for HSBC home loan customers.
Eugene Bartsaikin, director and mortgage adviser at Twine Financial Advisers, said in June there was a risk HSBC customers could become “mortgage prisoners”, where they remained on a floating rate and were unable to lock in a new fixed rate or change lenders.
Announcing its exit, HSBC said fixed rate customers with loans maturing before September 13 would be offered a further fixed rate term for six months before moving to a variable rate, while customers with loans maturing after this date would move to a variable rate straight away.
