A vulture fund, a bank or promoter John Kinghorn buying back the company he floated at $2.50 a share at less than $1 a share after the unfortunate events of August? Whatever the reason, RAMS Home Loans Group (RHG) rising almost 17% yesterday, with 36 million shares changing hands, was the most positive development for the non-bank lender since it became the company most expected to fallover in the credit squeeze.

RAMS closed up at 97 cents, still a long way from the $2.50 it was floated by UBS on 27 July just as the credit crunch was gathering pace. It was hammered sharply last month during the global squeeze in credit markets, which pushed up the cost of funds for mortgage lenders like RAMS. The shares hit a low of 56 cents on 16 August because it was unable to rollover two programs worth $6.17 billion in the US commercial paper market, which was frozen at the height of the credit crisis. It has since extended the two programs for 180 days.

RAMS also said the increased cost of funds would hurt its 2008 profits and there have been rumours focusing on a large domestic commercial bank with the NAB’s name most mentioned. John Kinghorn, who was the owner and vendor, could be taking the opportunity to buy back in, but brokers point out that Macquarie Bank’s equities arm was the most active broker, while UBS was also in the market. Kinghorn sold RAMS through UBS.

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The other factor to consider is the commentary by the Reserve Bank yesterday that the big commercial banks might be winners from the credit crunch and the higher short term interest rates and higher credit quality standards, at the expense of non-bank lenders like Rams. So punters could have been positioning themselves, especially with publicity about how some big investors were looking to start so-called “vulture funds” to pick over the subprime mortgage and credit market messes.

RAMs has around $14 billion of mortgages, and is a cheap buy at 97c or so. Certainly the $2.50 issue price is a relic of bygone days. But the spur for the dealing could have been the news that Macquarie Bank did the first residential backed mortgage securities issue in the domestic market (for $400 million) for some weeks.

The falling bank bill rates and easing liquidity strains allowed this test issue to be sold without a hitch and perhaps it was the smarties seeing that happen which sparked the activity in RAMS.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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