Pepper announces $250m Citibank deal

by AB25 Mar 2013

Pepper has announced the acquisition of a $250 million small balance commercial mortgage portfolio from Citigroup Pty Limited (Citibank), which the non-bank lender says is part of its strategic growth plans to extend its specialised lending services beyond residential home loan products.

The deal represents Pepper’s first domestic acquisition of 2013, but comes on the back of an 18 month period that has seen the company acquire several whole loan portfolios and financial services businesses in Australia and Europe, facilitating its expansion into new asset classes and markets.

The small balance commercial loan portfolio acquired by Pepper includes loans to approximately 730 customer relationships with an average balance of circa $345,000. The vast bulk of the loan book is secured by residential and commercial properties located in New South Wales and Victoria, with some exposures in Queensland, Western Australia, South Australia and Tasmania.

Pepper’s group managing director and CEO, Patrick Tuttle, says this latest acquisition enables the lender to further diversify its business into the commercial real estate space, while retaining its position as a specialist lender to self-employed and small business owners.

Tuttle says he’s confident that the acquisition will be accretive to the group’s earnings and will provide a sound basis from which it can better assess the feasibility of commencing new Pepper-branded originations in the small balance commercial space in the near term, possibly within the next six to twelve months.

“A small balance commercial mortgage offering would complement our existing range of specialist residential mortgages which have traditionally focused on providing competitive access to credit for self-employed and small business owners.The small business sector has largely been forgotten in the wake of the GFC, so Pepper is keen to expand its product offerings to this sector as we continue to experience new lending growth.”

Citibank Australia chief financial officer, George Trowse, says the lender is happy to sell the portfolio to Pepper.

“We believe it is a good outcome for Citi and our customers, whom we believe will benefit from this arrangement. This portfolio was moved into Citi Holdings following Citi's decision in 2009 to close its commercial property book in Australia and to focus on residential mortgages, capital markets services and lending to large property companies”.

As part of the acquisition agreement between the two lenders, Citibank will continue to provide customer service to its former clients during a transition period that is expected to last approximately three months.