Sustainability worries over Members Equity Bank

Credit crunch prompts shareholder AusSuper to drive review

Members Equity Bank is to be subjected to a strategic review of its direction by its four largest industry fund shareholders.

Melbourne consultants LEK have been contracted by AustralianSuper, Cbus, HESTA and Host Plus in the wake of three new board appointments and an injection of liquidity.

In May, Brian Pollock, Sandy Grant and Anne De Salis joined Bernie Fraser, Anna Booth, John Ries, managing director Anthony Wamsteker and Garry Weaven on the board of Industry Funds Holdings, the merged umbrella company of ME Bank and Industry Funds Services.

Pollock is a fund manager who has been involved at board level with subsidiaries ME Portfolio Management and Industry Funds Management. Grant is the former chief executive of Cbus and De Salis worked as an adviser to former prime minister Paul Keating and later for AMP.

The new appointments could be perceived as strengthening Weaven's influence over the merged group.

AustralianSuper may be the prime agitator for the strategic review and drove the selection of LEK as consultants.

Australian Super is headed by Ian Silk and holds around 30 per cent of ME shares on its own. 

Australian Super was a big investor in the recent bond issue along with HESTA, HostPlus and Cbus who have another 40 per cent of the ME shares between them.

Members Equity merged with Industry Funds Services in 2007, a merger devised in 2006.

The credit crunch has forced Members Equity Bank to adapt its short-term strategy given the bank's previous reliance on securitisation to fund the bulk of its mortgage book.

As a result MEB slowed its growth in mortgages under management to only 0.9 per cent in the year to March 2008. The industry-wide rate of growth over the same period was 11.1 per cent. (Date derived from State of Play, the mortgage industry reported published by InfoChoice and The Sheet).

MEB has about $16 billion in mortgages under management, equal to about 1.7 per cent of the market.

Industry Super Holdings, the holding company for MEB and IFS, reported a net profit of $14.8 million in the year to June 2007, and is yet to report for the 2008 financial year.

The Canberra Times reported on Sunday that LEK would be paid $800,000 to report in September on the bank's operations, including its sustainability and possible sale.

LEK are a US based consultancy. In Australia LEK is headed up by Simon Barrett in Melbourne and have formed good relations with state and national Labor governments.

www.thesheet.com

Article from Financial Standard    Monday, 11 August 2008

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