The Role of Securitisation in Australia s Financial Markets. Chris Dalton 28 September 2009 Melbourne Centre for Financial Services

Transcription

1 The Role of Securitisation in Australia s Financial Markets Chris Dalton 28 September 2009 Melbourne Centre for Financial Services

2 Securitisation in Australia 1. Role of Securitisation in the Australian Financial Market 2. The Australian Securitisation Market Pre Financial Crisis 3. Current State of the Securitisation Market 4. Regulatory Developments affecting Australia 5. Securitisation Market Outlook Page 2

3 Introduction to ASF Formed in 1989 the first! Preceded the establishment of the European and American Securitisation Forum Membership includes major banks, regional banks, smaller ADIs, NBFI, trustees, accountants, lawyers and CRA ASF objectives Advocacy Build industry consensus Education Page 3

4 Role of Securitisation Securitisation - simply another way to fund income producing assets ABS are debt securities backed by a segregated pool of receivables with credit enhancements where the cash flows from the asset pool are distributed to meet the interest and principal payments due to holders of the debt securities. GFC created gave securitisation tarnished reputation Australian securitisation has not had the credit problems of the US and some European markets Credit performance of Australian RMBS, ABS (incl. ABCP) and CMBS has been stellar Super trustees and investors have an aversion to structured credit Losses incurred by (unsophisticated) buyers of CDO s damaged the brand Important to remember benefits of securitisation Augments credit available through the banking system Provides competition in a consolidating banking sector An important part of development of the domestic debt capital market Provides a investment suitable for pension and annuity funds Importance and role of securitisation endorsed by IMF and Australian regulators Page 4

5 State of the Market Pre-Crisis A significant market Residential mortgages were the dominant asset class Commercial mortgage-backed securities were issued by A-REITS Asset-backed commercial paper funded bank sponsored conduits Variety of term asset-backed securitisation (auto and equipment leases) Page 5

6 Issuance type RMBS CMBS ABS Page 6

7 Non-bank Lending hit by Credit Crunch '000 Sources: ABS, Westpac owner-occupier housing finance - number of loans banks non-banks* wholesale lenders ' Aug 07 to Jul 09: non-banks: -48% banks: 7% wholesale: -71% Jul-91 Jul-94 Jul-97 Jul-00 Jul-03 Jul-06 Jul-09 0 Page 7

8 Current State of the Market Impact of Financial Crisis Securitisation market froze in mid 2008 Liquidity disappeared Offshore structured investment vehicles (SIVs and hedge funds) became distressed sellers Market to market accounting created paper losses for holders of RMBS Many cash enhanced trusts caught with illiquid securities Government reacted quickly to set up AOFM RMBS investment program Future Fund purchased a substantial amount of deeply discounted RMBS Consolidation of RMBS Sector St George Bank and RAMS acquired by Westpac Macquarie closed its PUMA RMBS program Wizard sold to CBA s subsidiary Aussie Home Loans BankWest acquired by CBA Challenger s mortgage business acquired by NAB ASF Response Advocacy of continuing government support Developed a framework for covered bonds New ABS disclosure standards Page 8

9 Market Share of Residential Lending Stock 25 %tot All residential housing %tot Securitisation Vehicles Other Lenders 76 5 ADIs (RHS) Sources: ABS, Westpac 72 0 Mar-02 Mar-05 Mar Page 9

10 30+ Day Prime Arrears By Country % Italy UK Germany Netherlands US Australia Spain Portugal Ireland Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 % Sources: S&P, Westpac Research, Bloomberg Page 10

11 RMBS Issuance $bn AOFM Sponsored SAM 08-1 $500m GPAC 08-AN1 $303m Puma S7 $700m Nautilus 08-1 $208m SMHL $300m Torrens 08-3 $503m Puma S6 $300m Puma p15 $315m Maxis 08-1 $470m Firstmac 08-2 $600m SMHL 08-2 $600m Apollo 08-3 $444m Challenger 08-1 $441m Firstmac 08-1 $173m Challenger 08-2 $824m Resimac 08-1 $609m Harvey 09-1 $482m Torrens 09-1 $559m Progress 09-1 $535m Reds 09-1 $712m Liberty 09-1 $600m Challenger 09-1 SMHL 09-1 $714m Resimac 09-1 $550m Firstmac 09-1 $625m $bn Apollo 09-1 $1,478m GBS No.4 $262m Maxis 09-1 $276m SMHL 09-2 $1,255m WB 09-1 $434m Light No.2 $263m Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec Page 11 Sources: S&P, Fitch, Bloomberg, Westpac, AOFM

12 Regulatory Developments G20 meeting in London sought ways to help securitisation markets recover IOSCO established a taskforce on unregulated markets and products IOSCO recommendations for securitisation issued in August Alignment of interests - skin in the game Disclosure standards On-going reporting standards Improved analytical tools for investors Involvement and certification by external, independent experts Significant new Australian legislation affecting securitisation Uniform Consumer Credit Code National Unfair Contract Terms Law Personal Property Securities Law Page 12

13 Recent ABS issues Investors distinguishing between RMBS issued by bank and nonbank financial institutions Successful A$1.25 bill RMBS issue by Suncorp Two non-aofm supported issues by Members Equity Bank ANZ Bank led issue of ABS of equipment lease receivables originated by Case New Holland Issue of CMBS by Macquarie Countrywide Trust Investor appetite is currently in shorter dated tranches Page 13

14 Market Outlook Vanilla is the new black Straight forward structures ASF disclosure and reporting guidelines Pre-requisite for securitisation is a normalisation of conditions in credit markets and a return of investors seeking pick-up in yield Credit spreads need to contract below 150bps for RMBS to be economical Issuance to return slowly with smaller transaction sizes Domestic investors likely to be major buyers initially (swap costs need to fall) Risk to Australian issuers and investors from uncoordinated regulations between the US and EU Page 14

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