Demand for debt early sign of hope
The Age
Wednesday September 9, 2009
PRESSURE on the Federal Government to pump as much as $22 billion of additional liquidity into residential mortgage-backed securities (RMBS) has greatly eased after the first raising of new debt from the market without state backing in almost a year. The issue of a $276 million investment package by ME Bank, the industry superannuation funds-backed bank, was a major boost to the recently frozen RMBS market that was once a major source of funding for smaller financial institutions and non-bank lenders. It was completed without the need for ME Bank to tap the $8 billion fund set up by the Federal Government last October in response to the global financial crisis, which shut down the world's credit markets. The fund has been operated by the Australian Office of Financial Management (AOFM) and accessed by several specialist mortgage lenders in an effort to maintain competition in the home loans market now dominated by the big four banks. But with the fund just $500 million from exhaustion, the industry has been been pressing the Federal Government to extend its financial support to the AOFM to as much as $30 billion. One recent deal, by the Queensland-based and ASX-listed building society Wide Bay in July, soaked up $340 million of AOFM funding and led to the remaining $500 million being reserved for those lenders without access to customer deposits. Yesterday's move by ME Bank, which was supported by Westpac, was doubly important as it was greatly oversubscribed €” an indication that investors are confident enough to buy "normal" market-risk Australian prime mortgages without the Government stepping in. Residential mortgage-backed securities are packages of home loans that mortgage providers sell to investors to raise additional finance to keep their flow of lending going. "It's a very early sign but a very good one," said Ali Gray, ANZ Bank's head of debt capital markets. Her comments were mirrored by the Treasurer Wayne Swan, who said the new debt raising was a "positive" step. It was also further evidence that the Government's financial support for the market had been the right thing to do, Mr Swan said. He would not be drawn about further backing €” which observers believe could be reduced to no more than an extra $2 billion €” although he was circumspect about ending the funding too soon.
© 2009 The Age
Share This