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Geoffrey Newman
August 16, 2005
AUSTRALIA'S only listed mortgage broker is locked in conflict with franchise owners - who control more than a third of its loan book - after it cut performance bonuses in a slowing home loan market Mortgage Choice has been served a notice of dispute by a group of 40 owners who between them control about 100 franchises, a quarter of the total.
The franchisees are believed to represent about $8 billion of the company's $20 billion loan book. The dispute centres on the payment of performance bonuses to franchises for reaching monthly targets for the volume of loans written.
A new two-tiered commission structure introduced in April makes it tougher for individuals who own more than one franchise to meet their monthly target.
The dispute comes at a time when the company's franchisees are reporting a drop off in loan volumes of as much as 20 per cent as the housing market slows after a record boom. Banks such as the Commonwealth and ANZ have also cut back on commissions to broking firms.
But Mortgage Choice believes the row is not serious enough to report to shareholders through a notice to the stock exchange. "Our advice is that it's not something that needs to be reported to the stock exchange," company spokesman Warren O'Rourke said.
Under the Australian Stock Exchange's continuous disclosure rules, a company must inform the market if it has information which could materially influence the share price or investment decisions.
The dispute also coincides with the release from escrow of 52 million shares held by Mortgage Choice founders Peter and Rodney Higgins, or just under half the value of the company.
The shares were held in escrow following the float of the business in August last year, ending when the company reports its full-year results on August 24.
Despite the slowdown in the loan market, Mortgage Choice's share price has risen from less than $1 in March to $1.23 yesterday. In March, the company announced it had reached the $20 billion milestone for its mortgage book, making it bigger than players such as Suncorp and BankWest.
The brothers Higgins were valued at $135 million in the most recent BRW rich list.
Mortgage Choice reported a 15 per cent lift in net profit to $6.53 million for the six months to December 31.
Under the new bonus structure, a franchise owner receives a performance bonus of 10 per cent if they settle $1.7 million of loans in a month. But the owner of two franchises must reach a total of $1.7 million for each franchise plus another $1.7 million, or a total of $5.1 million.
One owner involved in the dispute told The Australian that the company had been unresponsive to his concerns, which had forced him to lodge a formal complaint. "They (the franchisees) just feel this is a ridiculous decision," he said. "They feel this is stopping the company from growing."
He said he doubted the dispute would be solved through mediation given the company's attitude so far and said the group was already contemplating legal action.
The franchisees have told Mortgage Professional Australia magazine that missing a performance bonus could cost an owner between $6000 and $25,000 a month, enough to force some owners to consider selling.
At least 30 Mortgage Choice franchises are believed to be up for sale to try to get around the new system.
"Many owners budget on meeting the targets and build the bonus payments into their annual business costs. Some may have to lay off staff if they continue to miss out on the bonuses," another owner told the magazine.
August 16, 2005
AUSTRALIA'S only listed mortgage broker is locked in conflict with franchise owners - who control more than a third of its loan book - after it cut performance bonuses in a slowing home loan market Mortgage Choice has been served a notice of dispute by a group of 40 owners who between them control about 100 franchises, a quarter of the total.
The franchisees are believed to represent about $8 billion of the company's $20 billion loan book. The dispute centres on the payment of performance bonuses to franchises for reaching monthly targets for the volume of loans written.
A new two-tiered commission structure introduced in April makes it tougher for individuals who own more than one franchise to meet their monthly target.
The dispute comes at a time when the company's franchisees are reporting a drop off in loan volumes of as much as 20 per cent as the housing market slows after a record boom. Banks such as the Commonwealth and ANZ have also cut back on commissions to broking firms.
But Mortgage Choice believes the row is not serious enough to report to shareholders through a notice to the stock exchange. "Our advice is that it's not something that needs to be reported to the stock exchange," company spokesman Warren O'Rourke said.
Under the Australian Stock Exchange's continuous disclosure rules, a company must inform the market if it has information which could materially influence the share price or investment decisions.
The dispute also coincides with the release from escrow of 52 million shares held by Mortgage Choice founders Peter and Rodney Higgins, or just under half the value of the company.
The shares were held in escrow following the float of the business in August last year, ending when the company reports its full-year results on August 24.
Despite the slowdown in the loan market, Mortgage Choice's share price has risen from less than $1 in March to $1.23 yesterday. In March, the company announced it had reached the $20 billion milestone for its mortgage book, making it bigger than players such as Suncorp and BankWest.
The brothers Higgins were valued at $135 million in the most recent BRW rich list.
Mortgage Choice reported a 15 per cent lift in net profit to $6.53 million for the six months to December 31.
Under the new bonus structure, a franchise owner receives a performance bonus of 10 per cent if they settle $1.7 million of loans in a month. But the owner of two franchises must reach a total of $1.7 million for each franchise plus another $1.7 million, or a total of $5.1 million.
One owner involved in the dispute told The Australian that the company had been unresponsive to his concerns, which had forced him to lodge a formal complaint. "They (the franchisees) just feel this is a ridiculous decision," he said. "They feel this is stopping the company from growing."
He said he doubted the dispute would be solved through mediation given the company's attitude so far and said the group was already contemplating legal action.
The franchisees have told Mortgage Professional Australia magazine that missing a performance bonus could cost an owner between $6000 and $25,000 a month, enough to force some owners to consider selling.
At least 30 Mortgage Choice franchises are believed to be up for sale to try to get around the new system.
"Many owners budget on meeting the targets and build the bonus payments into their annual business costs. Some may have to lay off staff if they continue to miss out on the bonuses," another owner told the magazine.
Cheers
Marc