The RAMS share price crashed from 85 cents to 66 cents on the news - a mere fraction of the $2.50 it listed at on the stock exchange 10 weeks ago.
It had funded its entire $6 billion mortgage loan book on the short-term money market.
After the US credit crunch hit in early August it had difficulty refinancing its loans.
Westpac has agreed to provide finance “at market rates” for new RAMS loans sold between November 15 and January when Westpac takes over the RAMS brand name, its franchise distribution business and its new business...
The RAMS directors yesterday unanimously recommended the Westpac to their shareholders in the absence of a superior proposal.
Under the deal the listed company will continue to run the existing RAMS home loan book until the loans expire. It will change its name and agree not to compete with Westpac in the home loans business.
Westpac will use the RAMS name to sell Westpac loans through the 92 Home Loan Centres that it will acquire from RAMS.
Westpac’s Chief David Morgan told analysts that Westpac would use the centres to sell a broader range of rebranded Westpac home loans as well as extra rebranded products such as personal loans, credit cards and insurance.
He said the rebranding strategy was not new for Westpac. It had used it for superannuation, selling Westpac products under the BT brand name.
“Acquiring this business extends our Australian distribution footprint and reach and dove-tails into Westpac’s existing growth plans,” Dr Morgan said.
The move will create the appearance of continued competition in home loan industry while removing some of that competition.
It mirrors the consolidation in the mobile phone industry which has seen a number of apparently separate providers selling the same service under different names.
RAMS was among the wave of new lenders that forced banks including Westpac to slash their margins on home loans in the mid-1990s.
With Westpac now owning both the RAMS name and the RAMS distribution system, RAMS will not do it again.
“Once we assume control of the business we'll be pricing in our own best interests," Westpac’s chief David Morgan said.
In the same announcement yesterday RAMS detailed immediate increases in all of its mortgage rates. Its standard variable rate will climb today by 0.15 per cent, and its low-doc variable rate by 0.30 per cent.
The increases will hit all 50,000 of its existing customers.
In a sign that the days of discounted home loans are ending RAMS said the increase would bring it “into line with many other Australian lenders”.
The Reserve Bank met yesterday to consider Australian interest rates and is understood to have decided to leave them unchanged.
It will meet again to consider rates on Melbourne Cup Day November 6 after the release of updated inflation figures and may lift rates if the figures concern it.
