11th October

Is La Trobe a Bank?

La Trobe is a non-bank finance company. We are a non securitised, balance sheet lender. Unlike many of today’s mortgage operators, La Trobe’s funding is ours as we do not act as an originator agent for another party. When you deal with La Trobe you are dealing with the lender and the decision maker.

How does La Trobe raise the funds in order to be able to provide home loans?

Our funding is raised directly from institutional and private investors, which has been the platform for our success since 1952. Our institutional investors include a number of major banks, second tier banks, insurance and other financial organisations. We hold a full AFSL licence, so private retail mum and dad investors can also invest in La Trobe through our Mortgage Fund which provides tailored investment solutions. Today, we have over 12,000 registered retail investors nationally and several institutional mandates.

Are there any other non-banks in Australia with a similar business model?

Not to our knowledge, and particularly one of our size. La Trobe is quite unique in that we offer a total menu of loan products to suit the varying needs of our customers. These include limited commercial loans with our flexible on the spot loan approval capabilities, combined with an investment management process which allows direct contact by both the consumer and our business partners with our key decision makers at La Trobe. We also manage the custodial process, as we hold the security deeds to our mortgages. Over the past 55 years of operation we have developed a prudent but flexible lending policy used to screen individual loan applications that fit our chosen risk appetite for mortgages across Australia.

One of the pleasing aspects to our business is that our borrowers are now in turn becoming investors as they tell us it is the quality of our staff that shines.

Does La Trobe seek to compete directly with the banks? How does it differentiate its products and services?

There is an old adage, "When elephants fight, the grass gets trampled.” So we attempt to focus on markets that are underserved by the more traditional lenders. What we endeavour to do is to provide a full range of niche mortgage lending products with a bias towards speed of approval and creating a clear path towards settlement. Our execution of loan applications for brokers and third party referrers is how we primarily differentiate ourselves.

We focus on lending niche products against residential properties, and also write a limited number of construction loans, and loans secured on commercial premises.

How did La Trobe react to the arrival of securitised mortgage lenders in the early nineties? Did this added competition put pressure on La Trobe?

Firstly, many such companies saw La Trobe as being a stable, prudent and well run operator with a long track record of success. Secondly, the early 90’s was unusual in several regards….. the lagged effect of high interest rates, double digit unemployment and a high level of financial institution collapses in the late 80’s which affected many home loan customers and business in Australia negatively. The advent of new securitised mortgage lenders really only challenged the more traditional lenders and forced the major banks in the later 90’s to rethink their customer proposition as to the amount of margin they could charge for standard home loan business. It appeared the newer ‘kids on the block’ securitised lenders were also very good at self promotion to the consumer. However during this period La Trobe ‘stuck to our knitting’ as a specialist non-bank lender and our loan volumes just kept increasing. We knew we had a clear point of difference in the market that our customers felt comfortable with. Previously we had outlived many onslaughts by insurance companies based lenders and building societies, particularly during the 60’s & 70’s on our chosen lending sectors. These challenges over many years have strengthened La Trobe, hence why we have developed a winning culture that focuses on what we do best rather than trying to spend too much of our time being over focused on others.

A major impact of the new 90’s players was therefore to reduce bank lenders’ volumes. As a result net interest margins were squeezed from an average Net Margin of 3.5% down to 1.25% by the end of the 90’s; by which time the major banks had simply learnt how to securitise mortgages for themselves and the non bank securitisers original pricing advantage had been all but wiped out. Our view is that this intense pricing competition has been good for the sector, because it has benefited the consumer, and ironically in 2007 – a decade later - the renewed price competition is this time around being led by the major banks.

What are the implications of having such a fragmented mortgage market nowadays (i.e. so many players)?

No substantial negative implications for the consumer as it is the result of a very mature consumer market resulting from intensive commoditisation of the underlying product – a mortgage. At last count according to Cannex there were some 300 entities calling themselves lenders in Australia, offering over 1258 home loan products. This range of product choice and number of players, whilst possibly overwhelming to the consumer, is a direct function of the level of income still available in the market for brokers and mortgage managers. Combined with the low level of licensing and barrier to entry for new players; the later possibly presenting a low to moderate consumer risk.

However one outcome of fragmentation in the market has been the shifting focus towards distribution by the players. The real war is now not only about pricing but about the talented players who have the ability to establish and maintain sales points with skill and deliver consistent quality loan volumes. The major banks in the 90’s, in an effort to regain lost profitability, made deep and unpopular cuts to their branch networks which they are only now reidentifying as a key tactic in this war. So the fragmentation will continue for some time until the banks, who have a habit of running hot and cold with the broker distribution channel, decide they can handle the market direct again.

This fragmentation on the whole has served the Australian borrowing public very well, with a higher level of consumer convenience than previously was the case.

Which distribution channels does La Trobe use – branches, brokers etc.

We have nationally appointed State and relationship Managers in the capital cities. Our head office is in Melbourne with our National Administration Office in Traralgon, and we are currently scoping the possibility of opening offices in Sydney and Brisbane. We also use many of the major aggregating groups and individual brokers to distribute our loans.

How has La Trobe’s acceptance in the market as a non-bank progressed?’

With a track record going back to 1952, when La Trobe was established, we are well known in the marketplace nationally by the other bank and non-bank financial institutions, and this has filtered down to individual brokers and consumers. We don’t have bricks and mortar offices in every suburb in every town, or franchised offices on every corner, so we’re not quite a household name in that respect. However in a service driven industry it all comes back to the quality of service provided by our 136 staff who have an unrelenting approach to providing complete customer satisfaction. When it comes to our people one of our main values has always been to recruit and retain the very best the industry has to offer.

For all of us at La Trobe it is not just a job… it's our vocation and profession, we love it and deeply believe that La Trobe is the way finance should be.

Best regards
Iain Pepper


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Iain Pepper
Head of Lending

Iain Pepper is a Vice-President and the Head of Lending for the La Trobe Group.Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

IMPORTANT: This message, together with the La Trobe Financial website (www.latrobefinancial.com.au) and all its contents have been prepared for general information only and should not be taken as legal or financial advice, and as such the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the La Trobe website. La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. You can get a copy of the PDS by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you. (1) The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Investors risk losing some or all of their principal investment. (2) The rating report is available on the La Trobe website or upon request. The rating is only one factor to be taken into account in deciding to invest. (3) Withdrawal rights are subject to liquidity and may be delayed or suspended. (4) Rates (where shown) are indicative and for information purposes only and must be confirmed by your La Trobe loan manager upon formal application. Rates are subject to change. Please refer to http://www.latrobefinancial.com.au for full comparison rate schedule