BoQ defends franchised branches

BANK of Queensland is defending its much-trumpeted strategy of using franchised bank branches to expand interstate against an attack by disgruntled franchisees in the key NSW market…The bank, though, had refused to meet the OMBs as a group, and retaliated against some of the agitators by terminating their agencies.

The Australian
September 1, 2006

BoQ defends franchised branches
Richard Gluyas

BANK of Queensland is defending its much-trumpeted strategy of using franchised bank branches to expand interstate against an attack by disgruntled franchisees in the key NSW market.

Some owner-managed branch (OMB) operators are preparing legal action as the dispute flares.

BoQ has already terminated agency agreements for common operators of the Maroubra Junction and Hurstville branches in Sydney, citing "serious threats" made against the bank.

Two days ago, the operators of the Castlereagh Street branch in the CBD were also removed in circumstances the bank says were unrelated.

Representatives of the OMBs would not comment.

However, BoQ retail banking boss Donna Quinn explained the action against the Maroubra Junction and Hurstville branches in a June letter marked "private and confidential".

The letter, a copy of which has been obtained by The Australian, says the two OMBs had "issued demands that the bank meets with them to discuss issues other than their own and have made some serious threats".

"They have also disseminated incomplete information which is misleading about the network, and on the performance of individual OMBs," Ms Quinn says.

Ms Quinn's assertions were strongly rejected by sources in the OMB network.

They said there had been a request for a group meeting with BoQ chief executive David Liddy and others, but there was no "demand" and the purpose was to address issues that would help create a sustainable business model.

The bank, though, had refused to meet the OMBs as a group, and retaliated against some of the agitators by terminating their agencies.

A BoQ spokesman said the OMB system was a "major platform for future growth which has been extraordinarily successful".

"But unfortunately, at any given time, there are three or four out of 160 in total that we are dealing with," he said.

"Occasionally, some people have tried to get leverage against the bank by trying to besmirch their fellow OMBs, and the bank takes that very seriously."

Last April, BoQ announced an 18 per cent increase in half-year profit to $42.3 million.

The bank has 215 branches, of which 160 are franchised. Of those, there are 35 in Sydney.

Interstate expansion began in 2004 and had mushroomed to 53 OMBs by last April; a figure that is expected to more than double to 110 by August next year.

ACCC boss Graeme Samuel recently said franchising's huge overall success had sometimes been compromised by "severe pressures from expanding too quickly, or from structural flaws not sorted out in the early phases of the business".

The BoQ spokesman said there were no such problems with the OMB system.

"We had 140 branches in Queensland (around 80 of them were OMBs) before we moved interstate," he said. "This is not an untried model."

BoQ said in a presentation slide last April that its target for a new branch, after a six-month establishment period, was to generate new lending of $3 million a month and $1 million of new deposits.

But an OMB source in NSW said $3 million in new lending a month would not create a viable business.

He said BoQ had told potential metropolitan franchisees their target should be $4 million. However, few OMBs are meeting that target.

The OMBs had a victory in June, shortly after Ms Quinn wrote to them, when BoQ lifted upfront and trailing commissions on OMB-referred loans. But one said it was "too little and too late". He said franchises cost $80,000 upfront, and there were continuing monthly payments.

The cost of average branch fitouts was around $400,000, and there were significant overdrafts for working capital, either funded by cash or secured against OMB operators' homes.


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