YBR head confident for the future

Indeed, the executive chairman of the YBR Group, Mark Bouris, told The Adviser that several leading aggregators recently spoke with the Treasurer’s chief financial services adviser to discuss the royal commission recommendations and the government’s stance on it.

“The Treasury’s position is that they do not want anything to happen that will in any way negatively affect brokers. They do know that you can’t go changing remuneration structures or the amount of remuneration that a broker gets [if] it puts them out of business. So, the Treasurer’s office has made it clear to us that they understand that and they do not want us to, in any way, be jeopardised financially because if we are, that would see brokers leave the industry and that will cause a breakdown of intermediaries, which will put the power straight back into the hands of the banks. They are well aware of that.”

Mr Bouris added that it was his understanding that the Labor Party was “in exactly the same position and take the same view”.

The YBR group executive chairman said: “That indicates to me all the right sounds. But [Treasurer] Frydenberg and [shadow treasurer] Bowen seem to understand the importance of the intermediary and there is no way that either one of those individuals will ever want to be accused of being responsible for handing back power to the banks.

“Labor and Liberal both realise how important a broker is. They are both making common sense noises and making sure that we are not done over as a result of the Hayne royal commission or done over individually by the banks.”

Mr Bouris told The Adviser that he believed that brokers will continue to be the channel of choice because “borrowers do not trust anybody other than the broker to find them the best deal”.

“Ultimately, the consumer will prevail,” he said. “The consumer has said, repeatedly, how important brokers are in this really difficult credit environment.

“So, I think common sense is going to prevail, and I see us being kept whole. Yes, the structure of how we get paid will change, but we should get the same amount of money whether over time or upfront. That is what I think is going to be the outcome.

“We need to stick together and make sure that we see all the right people, but for me, I think everything is going to be good.”

YBR writes off goodwill

Mr Bouris’ comments came after the YBR Group announced a $34.15 million net loss after tax after writing off the goodwill of its wealth and lending businesses.

In an update to the ASX on Friday (8 March), YBR released its unqualified audit-reviewed half-year report for the six months to 31 December 2018, which showed a net loss after tax (NLAT) of $34.15 million. This largely comprised a non-cash asset write-down of $33.95 million ($30.96 million after tax) on the carrying value of the wealth management and lending business – as well as other intangible assets across the group.

The balance sheet reset therefore means that no goodwill is being carried forward.

As such, the only remaining item and largest cash delivering asset on the balance sheet is the trail commission book, which reportedly totals around $49 million.

Mr Bouris said that the goodwill write-off comes following “detailed consideration of the goodwill and other intangible assets in the context of the cumulative effect of challenging consumer and market trading conditions, the response from the banks to increased macro-prudential oversight, sentiment resulting from the [banking] royal commission and uncertainty regarding proposed changes to the future regulatory environment.”

Commenting on the results, he said: “The first half of this financial year has been challenging for the sector and we have taken decisive action. In this context, we have made the necessary decisions for the company to reset and provide a simplified balance sheet.

“It has been an unusually tough six months. Sentiment surrounding the royal commission, changes in credit approval processes, more intense regulatory oversight and greater compliance requirements and costs have created significant uncertainty. It is now particularly hard for mortgage originators and brokers to assist borrowers to obtain an approved home loan.

“In all the years of being involved in the home loan business, I have never seen such difficult borrowing conditions.

“These factors have caused an adverse impact to our new lending, particularly in the December quarter,” Mr Bouris said.

However, the founder and chairman of Wizard Home Loans suggested that the change in accounting will not result in any change for YBR franchisees or Vow brokers, telling The Adviser: “Nothing has changed for our brokers; we’re still paying the same commissions. It is business as usual.

“The only thing our YBR franchisees and brokers need to be concerned about is what happens if this country goes into a recession or something happens to the amount of flow that they are currently getting. In that regard, we are all in this together.”

He concluded: “There are 1,700 small businesses, brokers, that YBR supports through YBR or Vow and we are all in this together. We are all in the same ecosystem and I’m doing my very best to make sure that we protect every one of those businesses.”

The YBR Group board and management are said to be now undertaking a “broad strategic and operational review” to simplify the business, including assessing the wealth management business and business structures, “to ensure YBR remains competitive”.

The board will provide an update to shareholders by the end of April 2019.

[Related: Brokerage heads warn of banking royal commission impacts]