Australia’s five major banks are all but back in control of the home loan market after 15 years of being pounded by non-bank lenders like Wizard, Aussie Home Loans and RAMS.
The credit crunch has effectively killed off most of the non-bank side of the origination market, thanks to higher funding costs, higher lending rates, a shutdown of the key refunding mechanism and big losses.
RAMS was the first to go, imploding quickly after the crunch started last August: it was split up and the best bits sold off by November.
Now, one of the pioneers of mortgage origination and securitisation, Macquarie Group (the old Macquarie Bank) is quitting the market as of tomorrow. It won’t be the last.
One of the remaining funders, Adelaide Bank (now part of the more conservative Bendigo Bank), was the first to move rates yesterday with a 0.40% lift to its origination clients: that’s 0.15% more than the RBA move and shows just how badly the non-bank sector has been hurt by the crunch.
The departure of the French-owned Societe Generale from the securitisation market at the end of this month has caused problems for a number of non bank lenders and financial engineers such as the Allco Max trust. Over $1 billion in warehouse facilities and other credit lines will need to be replaced because of the Soc Gen move. There aren’t many offering themselves as replacement funders.
Soc Gen is going for the same reason MacBank is winding back its exposure: the easy days of big commissions and fee streams are over. No-one wants to buy mortgages from any lender, even the banks.
Guy Debelle, a senior member of the Reserve Bank who oversees the country’s financial markets, including securitisation, explained the problem in a speech in Sydney yesterday afternoon. The securitisation market has been among the most affected and, according to Debelle, this mechanism has all but vanished because of the credit crunch. Debelle said:
The Australian bond market has obviously been affected by these global developments. The major effect has been to engender a substantial degree of reintermediation. Corporate bond issuance has been almost non-existent. But corporate debt has continued to grow strongly, with businesses turning to the banking sector for funds.
That’s where the growth will be for the time being, but Macquarie doesn’t have the big balance sheets of its larger and more traditional competitors.
St George Bank has been a big securitiser of its mortgages to raise new money to re-lend, but even it has been shut out, forcing it to raise new capital from shareholders (delivering them big losses because of the recent slump in price).
But St George and the CBA, Westpac, NAB and ANZ can all finance their home lending off their rapidly growing retail and business deposits. Tens of billions of dollars have moved from the credit and sharemarkets into the vaults of the big banks in recent months, giving them the clout to boost business lending by 24.4% in the year to January.
Home lending is running at a 9-year low of 11.6% annually as the residential market slows.
That’s another reason why it’s getting tough in the non-bank sector: the amount of new business is down. Now they can’t sell a loan to save themselves.