BoQ's franchise boasts queried

The former owners of the branch have taken legal action, alleging BoQ deceived them into continuing to operate the branch, incur losses and solicit business for the bank…However, instead of only having to invest $50,000 in working capital to reach break-even, as they allege the bank told them, they ploughed in $600,000 while trying to build a viable business.

The Australian - Business
October 25, 2006

BoQ's franchise boasts queried
Richard Gluyas

BANK of Queensland's claim that its franchised interstate branches have been a huge success has been undermined by revelations that only two of the 16 established Sydney branches met their budgeted level of business.

Ten of the 16, according to internal documents obtained by The Australian, wrote less than half the level of expected business.

The main focus of BoQ's aggressive interstate expansion has been NSW and metropolitan Sydney where it now has around 35 owner-managed branches (OMBs).

Chief executive David Liddy, announcing a 21 per cent lift in 2006 profit earlier this month to $82 million, lauded the success of the bank's OMB model after it achieved its August target of 75 interstate outlets among an overall network of 215.

"No retailer, let alone a bank, has taken on such a task and succeeded," he said.

Asked if the business model was sustainable in Sydney, Mr Liddy said: "Definitely, yes."

But internal BoQ documents present a more difficult picture for metropolitan Sydney branches open for at least six months until last March.

The documents show actual and budgeted customer drawdowns for BoQ's entire branch network - including housing and personal lending, credit cards and commercial and equipment finance.

Sydney, with its high rents, subdued home lending and intense competition, is shown to be a tough market, with the documents highlighting the poor performance of four of the five OMBs that have either been terminated or handed back their keys. While the fifth branch, Bankstown, had yet to open, the other four reported less than 30 per cent of their budgeted levels of activity.

The Castlereagh Street branch in the CBD had total customer drawdowns of $7.7 million for the seven months until March - less than a third of the budgeted $27.7 million.

The former owners of the branch have taken legal action, alleging BoQ deceived them into continuing to operate the branch, incur losses and solicit business for the bank.

The statement of claim alleges the bank told them they would "easily" achieve break-even turnover of $4 million in monthly lending in the first three to six months, or within 12 months "even if everything went wrong".

However, instead of only having to invest $50,000 in working capital to reach break-even, as they allege the bank told them, they ploughed in $600,000 while trying to build a viable business.

BoQ has said it will vigorously defend the case.

A bank spokesman yesterday stood by the success of the model, pointing to the performance of all 33 interstate branches open for at least 12 months at the end of August.

That group of branches, he said, had performed in line with expectations, with average 2006 footings of $43 million, including $33 million in assets and $10 million in deposits.

"They are audited figures," the spokesman said.

"We have to be extraordinarily careful about what we say (to the Australian Stock Exchange)."

Mr Liddy has argued that tensions with some franchisees are an inevitable part of running a franchise operation.


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