Securitisation makes large and local resurgence in 2014

Bernard Kellerman
In their firm's Australian Mortgage Report for 2015, Deloitte financial services partners Graham Mott and Heather Baister examined funding options for local mortgage originators.

They observed that, during 2014, the share of the mortgage market continued to move gradually away from the majors as banks such as Macquarie actively sought to strongly grow their business.

"This reflected the improvement in wholesale funding costs and the narrowing of the gap between major bank spreads and non-ADI spreads," said the Deloitte report.

"Additionally, the trend for the majors and Macquarie to support other market participants through providing warehouse origination facilities and through direct equity investment continues."

In one section, Deloitte highlighted a distinct improvement in the residential mortgage backed securitisation market in 2014, building on a positive 2013 year.

"The market remained strong through 2014, and a number of entrants returned to RMBS issuance after a hiatus, including Citibank, La Trobe, and the securitisation of the RHG portfolio by RESIMAC.

"It was also a strong year for the non-conforming market, with a total of $2.3 billion placed publicly, and at least one issuance by each of Pepper, Liberty, RESIMAC and Bluestone as well as a small placement by RedZed," the Deloitte advisers said.

The mortgage report indicated that 2014 was the strongest year for Australian RMBS issuance since 2007, with total issuance for the year just shy of A$29 billion (up from $26.0 billion in 2013). Mott said this meant Australian ADIs led the world in total RMBS issuance for 2014, quite an achievement given the relatively small size of our market, and the lack of participation by offshore investors.

The trend has continued strongly into 2015, as Ken Hanton, NAB's director of capital financing, product and markets, observed in a note to clients. "We have taken the opportunity to compare just how strong the AUD securitisation issuance has been so far in 2015 to other fixed income markets," Hanton wrote

He said that, according to Thomson Reuters, year-to-date AUD fixed income issuance has been $43.1 billion, up 20 per cent from the same time in 2014. Of this YTD increase, RMBS and ABS has been the greatest contributor rising by $4.6 billion (or 77 per cent) to $10.6 billion.

What Hanton did not comment on was the dominance of local insto investors in RMBS-issuance,2004-2014

RMBS-issuance,2004-2014

snapping up Australian RMBS issuance.

In contrast, Mott suggested the skew towards domestic investors was primarily due to the expensive basis point swap costs, a consequence of the volatility of the AUD exchange rate.

He added that foreign investors would be looking to return to the Australian market in the next two years, but would be discouraged by lack of progress on lining up local rules with global regulations during 2014 - notably APS 120.

"The Financial System Inquiry, while supportive of securitisation as a funding solution to support competition, did not find room for any clearcut recommendations," he wrote, noting his firm was looking for movement on this, but did not hold out much hope of regulatory change in the near term.