Specialist lender Bluestone Group, has reported a strong lift in profitability in the first half of the financial year and launched a new business able to handle the back-office administration of other Australian and New Zealand lenders.

For the 6 months to December 2007, Bluestone recorded a 40% lift in cash earnings before interest tax and depreciation (CEBITDA) to $15.8m. Profitability was underpinned in the period by continued growth in its loan portfolio which now totals over $3.0b, the successful securitisation of over $600m residential mortgages in November and December, and the launch of Bluestone Servicing.

Total revenues on a cash basis for the 6 month period were $35.9m, with 94% of revenues earned being either cash-backed or received as AAA rated cashflow, derived from Bluestone’s securitisation programme. At 31st December, over 85% of the Group’s loans under management were funded via securitisation, which constitutes a non-recourse, long term funding source for the business. The business does not utilise the commercial paper markets or similar short term sources to fund its mortgage portfolio.

Portfolio losses for the period totalled $6.1m, representing 42bps on an annualised basis of the outstanding portfolio. Arrears levels remain well within the industry average based on the most recent Standard & Poors reporting. As at 30th September 2007, Bluestone’s 90 day plus arrears levels in Australia were 5.73% of the total portfolio, 19% lower than the industry average for non-conforming loans of 7.1%.

Commenting on the result, Bluestone Founder and Executive Chairman, Alistair Jeffery said that the business was benefiting from a solid, well capitalised operating platform and a large and growing loan book. “I’m very pleased that in a period of heightened volatility in the global capital markets, Bluestone has been able to consolidate its position as a leading specialist lender in Australasia. The business is operating smoothly and profitably, our balance sheet is strong and liquid, and we are one of the few specialists globally who have retained on-going access the term funding markets via securitisation,” said Mr Jeffery.

Bluestone benefits from a number of strategic, institutional shareholders including ABN AMRO, Barclays Bank, Crescent Capital, Cambridge Place Investment Management and the Liberman family. These shareholders account for over 60% of the share capital of the business, with Mr Jeffery holding in excess of 20% of the share capital.

Bluestone Servicing, which has already been rated by independent Fitch Ratings, is headed by financial services veteran, Mr Mike Dilworth, whose experience includes being Joint CEO & Head of Operations at AFIG (Wizard), Head of Westpac's Secured Lending Operations as well as heading Westpac's National Mortgage Centre in Adelaide.

In the 6 months to December, 07, Bluestone Servicing generated gross revenues of approximately $5m, representing 14% of the Group’s total revenues for the period. Servicing revenues are largely derived from fees paid by Bluestone’s funding trusts, fees which represent a senior (highly rated) obligation of the trusts. The business is expected to contribute over $3.5m to Bluestone’s full year CEBITDA result.

Bluestone Servicing becomes the Group's fourth business unit in Australia and New Zealand since the Group was established in 2000, joining Bluestone Mortgages which offers specialist and lo-doc residential property loans, Bluestone Equity Release which provides reverse mortgages to retirees and Bluestone Commercial aimed at self-employed borrowers and professional investors in the commercial property market.

Bluestone Group CEO, Mr Peter McGuinness, said the new operation evolved following an ongoing review of Bluestone's requirements for cost-effective and responsive servicing capabilities.

"When Bluestone launched seven years ago, the day-to-day administration of customer loan accounts was outsourced so that we could focus on establishing distribution channels and developing high quality, innovative product and funding structures," he said.

"As Bluestone grew, we recognised an attractive opportunity in developing our own servicing capabilities, so we have made a substantial investment in both capital, expertise and technology to develop BOSS, the Bluestone Origination and Servicing System.

"One of the core strategies we identified last year was to diversify our income streams away from pure origination based income, as well as diversifying the asset types under management. We are well on the way to achieving that objective with the launch of the Servicing business." Mr McGuinness said.

He said Bluestone's growth in providing over $5 billion of home loans to more than 20,000 Australians and New Zealanders created the opportunity to strengthen the way in which it services the needs of borrowers with streamlined processes and better management control in customer relationships.

"This latest initiative further underpins our strong position in the specialist mortgage market and should enable us to share our back-office management skills for the benefit of the wider lending sector. We are very comfortable managing the performance of the assets we have originated, and are now looking forward to applying this expertise to other loan books.

"We are delighted that Fitch have already awarded Bluestone Servicing a 3+ rating, rather than waiting the traditional 12 months of full operation, an indication of the robustness of the servicing initiative we are taking," Mr McGuinness said.

Newly appointed CEO of Bluestone Servicing, Mr Mike Dilworth said key advantages include real time access to data on Bluestone's portfolios, increased flexibility in portfolio management and a fully integrated work-flow and arrears management system.

"A key objective in setting up is to give Bluestone the ability to market new products and introduce product changes more quickly as the Australian financial marketplace becomes increasingly competitive," he said.

"A key strength of Bluestone has been its ability to manage arrears effectively. In developing our platform we are now able to leverage this strength.

"Bluestone Servicing has the inbuilt streamlined flexibility to be able to handle third party servicing and arrears management, and we are currently exploring a number of opportunities to leverage these capabilities" Mr Dilworth said.