Bluestone Group, which made its name as one of the leading providers of loans to customers with poor credit histories, has managed to increase net profit more than 10-fold after radically changing its business model in response to the credit crisis.
Bluestone Group, which made its name as one of the leading providers of loans to customers with poor credit histories, has managed to increase net profit more than 10-fold after radically changing its business model in response to the credit crisis.
Bluestone posted a net profit of $3.92 million for 2007-08, compared with a profit of $342,066 in 2006-07. Operating profit from continuing business doubled to $7.39 million from $3.8 million.
The results are made more impressive because of the fact that Bluestone effectively shut its lending operation in early 2008.
Chief executive Peter McGuinness says the company started the financial year reasonably optimistic about credit market conditions, but realised about half way through the year that the business needed to be radically changed – and quickly.
“We started planning or preparing for a change in August and September but really in January and February we had to move a lot more quickly when it was clear there was no light in the tunnel in terms of credit markets.”
Fortunately, Bluestone had bought its loan servicing business (which includes loan administration, collections, arrears management and, where necessary, enforcement) back in-house around two years ago, after outsourcing the function for many years.
With lending operations shrinking, Bluestone focused on the servicing business. “That has enabled to us to move from a lender to an asset manager in a short space of time.”
The company has also moved into the area of distressed loan management, whereby Bluestone partners with an investment firm to buy a portfolio of distressed loans and then manages the collection and administration of those loans.
Given the economic conditions, it’s a rapidly growing area. Bluestone recently acquired a distressed loan portfolio in New Zealand and will now target Europe’s struggling housing market. Executive chairman Alistair Jeffery will base himself in the UK.
“The beauty of that business is that there is always a degree of distress and it just so happens that Europe is one of the places where the distress is greatest,” McGuiness says.
“We are simply moving to where the opportunity is.”
McGuiness says the company remains keen to return to the mortgage lending business and is continuing with the development of its lending systems to ensure it can re-launch the business when credit conditions improve.
“We think we could turn the lights on in under three months as soon as we could get comfortable that the long-term funding was in place.”
“But there is no doubt that the next year is going to be extremely challenging if not more challenging than 2008. Our internal view is that there’s no chance that capital markets will change for at least 12 to 18 months.”
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