But the identity of the buyer is interesting. Investec is one of several investment banks with a presence in the mortgage industry.
Lehman Brothers and Merrill Lynch have built large volume origination platforms, but Investec may not have seen the volume it anticipated from its operations. Bolting on an additional lender appears to make good sense for it.
In April I wrote about the pro-fusion of new lender entrants in 2005 and 2006, suggesting that they would put pressure on each other and existing players, and that this would inevitably lead to consolidation.
I also questioned whether 2007 would be the year consolidation started or whether we would have to wait longer for the impact of the new entrants to become apparent.
Investec’s offer for Kensington answers this question. It is clear that the effect of the new lenders is al-ready being felt.
This is hardly surprising. Edeus is originating faster than anticipated and DB Mortgages seems to be producing impressive volumes too.
Mortgages PLC appears to have been rejuvenated somewhat by its change of ownership and the twin juggernauts of BM Solutions and GMAC-RFC continue to rumble along.
The pressure on other lenders in the industry must be increasing as their volumes are squeezed.
The most important thing to note about all successful lenders, be they new entrants or existing players, is that they either launched with or have invested in some serious technology.
This technology all-ows them to originate volume quickly with minimum fixed costs and maximum variable ones. Put simply, they are asset factories.
Kensington was the first mover in the UK sub-prime industry. It was originating significant volumes before many of the firms I have mentioned were conceived.
But it has lagged behind some relative upstarts in the industry in terms of its investment in technology. I would suggest that this has proved costly over time.
Kensington no longer leads the industry. Indeed, when you consider the multiple levels of involvement of certain banks in the sector – Lehmans is a good example – Kensington’s involvement begins to look small scale.
Its brand is still powerful so this lack of scale must be due largely to its relative lack of technology.
The sale to In-vestec should give Kensington access to more expertise and options when it comes to its funding, which can only be a good thing.
But to make a success of its investment, Investec will need to increase the volume-generating capacity of its new platform substantially.
This will be a significant challenge given the head start other lenders have over Kensington. I for one will be watching with interest to see if the grandfather of the specialist lending industry can be given a new lease of life.