Australian Securitisation Market Surges and Sputters

As we recorded earlier in the year, in many respects, the Australian securitisation market can be viewed as a trial balloon for the general recovery of global structured finance.

Partly because of its relatively small size but mostly because its track record for close collaboration between issuers (mostly Aussie banks and mortgage companies) and the Australian Government has been quite remarkable and a model for others to follow.  This close cooperation was once again evident earlier this month as the Australian Senate Economics Committee published a report detailing its inquiry into competition in the Australian banking sector.  The Senate report was very clear in its view that the slow recovery of the securitisation market is a “key factor” to reduced competition in the banking market.  This conclusion has once again raised the level of conversation about the role that the Australian Government can and should play in the revival of the structured finance market and the committee appears to be throwing its full weight behind a series of initiatives to help the market recover.

Issuance of Aussie securitised debt has increased on a year-over-year basis and 2011 issuance levels are expected to beat the AUS$20Billion issued in 2010.  The continued and pro-active support of the Senate and other governmental bodies will, no doubt, continue to feed the confidence of both issuers and investors.

However, until such time as offshore investors return to Australia,  securitisation will continue to sputter.  Since the late 1990’s the Aussie structured markets and the RMBS market, in particular,  have relied on offshore investors to fuel its growth.  Not unlike the capitally constrained bank that cannot meet loan demand, the Australian domestic investor market is simply too small to digest the leverage available to banks and other issuers of securitized debt.  In its heyday, the Australian RMBS market offshore investors held more than two-thirds of the AUS$170Billion outstanding. 

Issuers and arrangers are fully aware of this phenomenon, as is the Australian Government, and they seem to have undertaken a concerted effort to work with industry groups, including the Australian Securitisation Forum, to alert the international investor community that the Australian securitisation market is back open for business and that the national government will do all it can to make this market, once again, a model to be envied.

Perhaps it is easier for a smaller market to get its proverbial “act together”.  Nevertheless, it is a good sign to see at least one market getting serious about how to re-open this vital market.

About markferraris
Managing Principal Orchard Street Partners LLC

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