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AUSTRALIAN ASSET BACKED SECURITIES A growing market
JUNE 2013
2
0%10%20%30%40%50%60%70%80%90%
100%
2009 2010 2011 2012 2013(YTD)
RMBS CMBS ABS
OVERVIEW OF THE AUSTRALIAN SECURITISATION MARKET
012345678910
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2009 2010 2011 2012 2013(YTD)
Issu
ance
(A$m
)
Issuance Volume # of Deals
ISSUANCE TRENDS
>RMBS remains the dominant asset class
>ABS increasing as a proportion of market, ~20% of issuance, up from 10% pre GFC
>Historically Australian RMBS has priced inside ABS, however spreads have been converging
>2012 was another record year for Australian ABS
– 10 deals issued, eclipsing the previous high of 9 deals
– A$5.3b of issuance, up from A$4.9b
>ABS issuance at all time YTD high as at 31 May, on track to match record year in 2012
>ABS is attractive to investors
– Diversity value away from RMBS– Stable prepayment rates and shorter WAL
1. PUBLIC SECURITISATION ISSUANCE (A$B)
Source: Moodys Investor Services & ANZ Global Markets
Source: ANZ Global Markets, Bloomberg and KangaNews
2. STRONG AUSTRALIAN ABS ISSUANCE
16.1 22.2 27.7 18.6 13.8
3
0
200
400
600
800
1000
1200
2005 2006 2007 2008 2009 2010 2011 2012
mill
ions
Passenger Vehicles Sports Utility VehiclesOther Vehicles
THE AUSTRALIAN AUTOMOTIVE VEHICLE MARKET
0
2
4
6
8
10
12
14
PassengerVehicles
LightCommercial
Motorcycles Other
mill
ions
Registered Vehicles
A WELL ESTABLISHED MARKET
>Over 16.7 million registered vehicles in Australia
>Growth driven by passenger vehicles and light commercial vehicles
>Registration growth highest in Queensland and Western Australia
RECORD SALES VOLUME IN 2012
>New car sales market over 1.1 million. Resilient during the GFC
>Passenger vehicle sales still dominate, trend towards smaller vehicles
>SUV sales continue to grow in Australia
>Top 5 brands are Toyota, Holden (GM), Mazda, Hyundai and Ford
Source: Australian Bureau of Statistics
Source: Australian Bureau of Statistics
1. VEHICLE REGISTRATIONS IN AUSTRALIA
2. SALES OF NEW CARS AUSTRALIA
4
AUTOMOTIVE FINANCE IN AUSTRALIA – PRE GFC
A BANK DOMINATED MARKET – LIMITED ABS
>By late 2008 market estimated at over A$40b
>Market share was dominated by Esanda (ANZ bank), Toyota and BMW
>Other captive finance arms active in Australia were GMAC, Ford Credit and Mercedes
>Majority of funding for captive finance arms provided intercompany or via ABCP conduits
>ABS issuance from captive finance very limited
– Ford Credit- 2 deals in 1998 and 2001– Mercedes- 1 deal in 2004
>ABS issuance historically driven by specialist finance companies
>RMBS issuance primary investor focus with ~A$50b of issuance per annum
Source: Moodys, S&P, Fitch & ANZ Global Markets
Source: ANZ *Estimated figures based on publicly available information
17%
12%
12%10%
9%
8%
6%
6%5% 15% Esanda (ANZ Bank)
ToyotaBMWMacquarie LeasingGE MoneySt GeorgeFord CreditGMACMercedesOther
0200400600800
100012001400160018002000
1998 1999 2000 2001 2002 2003 2004 2005 2006
Issu
ance
(A$m
)
1. MARKET SHARE BY FINANCE PROVIDER 2007*
2. ABS ISSUANCE - 1998 TO 2006
5
AUTOMOTIVE FINANCE IN AUSTRALIA – POST GFC
THE GROWTH OF THE CAPTIVES
>Changing manufacturer view of captive finance arm - critical part of customer proposition
>Growth in subvention has been particularly strong. Aggressive pricing from VW, Toyota and Nissan seeking market share
>Manufacturers without captive finance arms partnering with commercial banks to offer competitive rates
>Finance penetration rate increasing but still substantially lower than Europe and US
Source: EU-5 and Experian Automotive
0%
10%
20%
30%
40%
50%
Equipment Pricing Customers thatstay loyal
Reduced HoldingPeriod
Increase with Captive Financing compared to cash
Source: Deloitte Touche Tohmatsu
1. CAPTIVE FINANCE PENETRATION
Geography Wholesale Consumer
Australia 35-40% 35-40%
Europe 55% 65-75%*
United States 40% 80-90%
Source: KPMG, Deloitte Touche Tohmatsu and BDO - as at 31 December 2011 *Germany and France
2. BENEFITS FROM CAPTIVE FINANCING
3. FINANCE PENETRATION RATES AUSTRALIA
0%
10%
20%
30%
40%
Luxury Prestige Volume
Q1 11 Q2 11 Q3 11 Q4 11Q1 12 Q2 12 Q3 12 Q4 12
6
AUSTRALIAN ABS ISSUANCE – WHERE TO NOW?
STRONG GROWTH POTENTIAL FOR ABS
>Automotive finance lending will continue to grow as penetration rates increase
>Funding for Captive Finance arms will be key
>Public ABS is an attractive funding option
– Matched tenor– Diversity value
>ANZ forecasts issuance to increase from A$5.2b of to over A$7.0b
Source: ANZ Global Markets, Bloomberg and KangaNews
Source: ANZ
-
10
20
30
40
50
60
2008 2012 2015 (f)
Am
ount
(A$B
)
Automotive Finance Australia
01,0002,0003,0004,0005,0006,0007,0008,000
2011 2012 2013 (f) 2014 (f) 2015 (f) 2016 (f) 2017 (f)
Issu
ance
(A$m
)
1. ABS ISSUANCE FORECAST TO GROW
Captive finance to drive ABS growth
0
50
100
150
200
250
300
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13
Bps
ove
r 1M
BBSW
AAA (2yr WAL) AA (3yr WAL)
50bps
100bps
3. AUSTRALIAN PUBLIC ABS PRICING
2. OUTSTANDING AUTOMOTIVE FINANCE
Source: ANZ Global Markets
7
PERFORMANCE OF AUSTRALIAN ABS
STRONG LOSS PERFORMANCE FOR AUSTRALIAN AUTO ABS
>Cumulative losses on Prime Australian Auto considerably stronger than the Prime US Auto
>Sound Australian performance driven by
– Continued economic growth through GFC and stable employment conditions– Strong underwriting and collections process
>Auto recovery rates matching historic averages of between 40-60%
>No negative rating actions for prime Australian ABS
1. US PRIME AUTO CUMULATIVE NET LOSSES 2. AUSTRALIAN ABS CUMULATIVE NET LOSSES
Source: Moody’s Investor Services
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 452005 2006 2007 20082009 2010 2011 2012
Source: Moody’s Investor Services
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 452006 2007 2008 20092010 2011 2012
8
OVERVIEW OF BANK SPONSORED ABS ISSUERS
SPONSOR
Programme Name SMART REDS EHP BELLA Crusade ABS Impala National ABS
Sponsor MacquarieLeasing
BoQ Equipment Finance Capital Finance St George
(Westpac)
Investec Professional
FinanceNAB
Collateral Auto &Equipment
Auto &Equipment Auto Auto
Auto & Professional Equipment
Auto & Professional Equipment
# of Public Issues 19 8 7 4 3 1
Total Issuance A$13.1bn A$4.8bn A$4.2bn A$3.3bn A$0.7bn A$0.4bn
9
OVERVIEW OF CAPTIVE AND NON-BANK SPONSORED ABS ISSUERS
SPONSOR
Programme Name CNH Liberty Auto Flexi ABS FP Turbo
Sponsor CNH Capital Australia Liberty Financial Certegy Ezi-Pay FleetPartners
Collateral Agricultural Equipment Auto Consumer Loans Auto
# of Public Issues 7 6 2 1
Total Issuance A$3.0bn A$0.7b A$0.4b A$0.2b
APPENDIX 1-Case Studies of Australian ABS Deals
BANK OF QUEENSLAND’S - SERIES 2013-1 REDS EHP TRUST
OVERVIEW
>BoQ’s 8th ABS issue
>Assets originated by Bank of Queensland Equipment Finance
>A$900m deal closed May 2013
>Funding trade – BoQ sold A and B notes and retained sub tranches
>Macquarie Arranger & JLM
POOL DETAILS
Collateral > 53% Autos> 47% equipment (all wheels)
Average Contract A$54,864
New/Used 61.8% / 38.2%
RV Risk? No – customer obligation
Geographic Split
> QLD 44.9%> NSW 19.5%> VIC 15.9%> WA 13.7%> Other 6.0%
TRANCHE DETAILS
Class Fitch/Moody’s A$M WAL Margin
A AAA/Aaa 721.8 1.4 +100
B AA/Aa2 45.0 1.9 +145
C A/A1 34.2 1.9 Retained
D BBB/Baa1 23.4 1.9 Retained
E BB/Baa3 25.2 1.9 Retained
Seller NR 50.4 1.9 Retained
DISTRIBUTION
>Upsized to A$900m from A$500m launch
>22 investors
>56% Aust/NZ, 42% Europe, 2% Asia
>56% Banks , 38% Funds, 6% Insurance
>Class A 1.56 x, Class B 2.9 x
11
12
WESTPAC BANKING CORPORATION’S - CRUSADE ABS SERIES 2012-1
ISSUER PROFILE> Crusade ABS Series 2012-1 was issued under the Crusade program,
financing auto loans originated by St George Finance Limited
> St George Finance Limited is one of the largest financiers of motor vehicles and equipment in Australia and is a wholly owned subsidiary of Westpac
TRANSACTION HIGHLIGHTS
> This was the fourth deal under the Crusade auto program and was the first issuance since the merger between Westpac and St George
> The deal was launched off the back of strong reverse enquiry from investors who were looking for asset diversification but had a preference for major bank issuance
> Initial deal size was $750m but this was increased to $1.2 billion following strong demand from investors
> The structure was innovative in that it included a 12 month substitution period during which new assets could be sold into the deal, effectively creating an initial interest only period and a weighted average life of around 2.5 years
> The pool was 69% new vehicles, geographically diverse, with a weighted average seasoning of around 19 months. Asset pool were only motor vehicles, with no equipment included
> Pricing dramatically changed the relative market pricing for ABS transactions relative to RMBS. Historically in Australia this deal would have priced around 40 bps above comparable RMBS. The transaction was launched at price guidance 20 bps tighter than a NAB RMBS deal at the same time
> Deal delivered investor diversification as well as a new secured funding platform for Westpac which can’t be easily replicated by other major banks
Westpac Banking CorporationCrusade ABS Series 2012-1
$1.2 billionAuto ABS
Arranger and Sole Lead Manager
KEY STRUCTURAL FEATURES
Substitution Period 12 months
WAL 2.5 years
ASSET TYPES
New Vehicles 69%
Weighted Average Seasoning 19.3 months
Australian Economic UpdateRisks to the residential property market from
a prolonged low interest rate environment
Amber RabinovSenior Economist, London
June 2013
1
Outlook for Australian interest rates
• We currently expect a further 25bp official interest rate cut before the end of 2013 taking the official cash rate to a record low of 2.50%.
• A fall in mining investment is expected to detract significantly from growth over the years ahead. Combined with an elevated Australian dollar and ongoing fiscal consolidation, this suggests that the RBA will need to do most of the heavy lifting on the policy front in order to generate a sufficient rebound in the non-mining, interest rate sensitive sectors of the economy.
• Consequently, we expect official interest rates will remain at low levels for an unusually extended period of time.
• Recent declines in the Australian dollar have provided some support to financial conditions, however, the RBA will be carefully monitoring mining investment and the major project pipeline, business sentiment/capacity utilisation, dwelling investment, employment, consumer spending and consumer price inflation.
• At present subdued inflation (actual and forecast) provides the RBA with ample room to ease policy further if economic conditions require. We expect a steady rise in unemployment and a relatively subdued response from the interest rate sensitive sectors to force the RBA’s hand in November 2013. The risk to our core view is that we see and earlier rate cut, and more than one cut.
22
Australia - The magnitude of the impending mining investment decline is becoming clearer. Prospects for a recovery in non-mining business investment remain subdued
Major infrastructure projects by stage
Investment (% of GDP)
Non-mining firms capital expenditure expectations
Source: Bloomberg, ABS, Deloitte Access Economics, ANZ
0
20
40
60
80
100
120
140
160
180
2011 2012 2013 2014 2015 2016Under construction Committed Under consideration Possible Cancelled/Indefinitely delayed
AU
Dbn
Investment pipeline excluding projects that have been either cancelled or indefinitely delayed since July 2012
Investment pipeline for projects that are either under construction or
committed
GDP by industry
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10
MiningHealth
Finance & insuranceTransport
Rental & real estateRetail
Professional servicesAdmin. services
WholesaleGDP
EducationPublic admin.
HospitalityArts and recreation
ConstructionManufacturing
UtilitiesIT
AgricultureOther services
y/y % change
0
1
2
3
4
5
6
7
8
80 83 86 89 92 95 98 01 04 07 10 13Engineering construction Dwelling investment Non-residential building
% o
f no
min
al G
DP
AN
Z
Fore
cast
s
3
1
2
3
4
5
6
7
8
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
%
RBA cash rate
ANZ forecast
Current market pricing
Bias for official interest rates remains to the downsideExpect low rates for an extended period
‘Market pricing’ of RBA cash rate
Source: Bloomberg, RBA, ANZ Research
44
Interest-rate sensitive sectors are responding (despite a recent loss of momentum), but overall economic pulse remains at a sub-trend pace. AUD catching up to commodity prices.
Retail Sales
AUD/USD vs Iron Ore Spot PriceNAB Business Conditions
Source: Bloomberg, NAB, ABS, WBC, ANZ
-5
-4
-3
-2
-1
0
1
2
3
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
NAB Business Confidence Westpac-MI Consumer Confidence
Sta
ndar
d de
viat
ions
from
ave
rage
sin
ce 1
997
Consumer and business confidence
-40
-30
-20
-10
0
10
20
30
40
50
60
70
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Mining Weak sectors* All industries
Inde
x (3
mm
a -
wei
ghte
d by
GD
P sh
are)
* Includes manufacturing, retail, construction and wholesale
Business conditions long run average
-9
-6
-3
0
3
6
9
12
-2
-1
0
1
2
3
4
5
02 03 04 05 06 07 08 09 10 11 12 13
% change
% c
hang
e
m/m (LHS) m/m, trend (LHS) y/y (RHS) Average since 2002 (RHS)
80
100
120
140
160
180
200
10 11 12 130.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
Spot iron ore price (China imports into Tianjin 62% Fe), lhs AUD/USD, rhs
AUD
/USDU
SD/m
t
55
The composition of economic growth will be less labour-intensive This suggests a gradual rise in unemployment and little pressure on wages. The inflation outlook is subdued despite weaker AUD
Key labour market indicators Job advertisements vs unemployment rate
Source: Bloomberg, SEEK, ABS, ANZ
0.3
0.7
1.1
1.5
1.9
2.3
2.73.5
4.0
4.5
5.0
5.5
6.0
6.5
03 04 05 06 07 08 09 10 11 12 13
Per cent of labour force, inverted
Per
cent
Unemployment rate (LHS) ANZ job ads (RHS)
Capacity utilisation and underlying inflation
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
78
80
82
84
86
88
90
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Capacity utilisation 6 months forward (LHS) Underlying inflation (RHS)
% o
f to
tal c
apac
ity
y/y % change
3.0
3.3
3.6
3.9
4.2
4.5
4.8
5.1
5.4
5.7
6.0
-40
-20
0
20
40
60
80
100
120
140
160
2007 2008 2009 2010 2011 2012 2013
Per cent
'000
s pe
r m
onth
Trend
Unemployment rate (RHS)
Employment growth (000s, LHS)
CPI measures
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13
% c
hang
e
Weighted median Trimmed mean CPI ex volatile items (fuel, fruit & vegetables)
q/q % change*
RBA target band
* Average of weighted median and trimmed mean
y/y % change
6
Key risks/impact of extended low interest rate environment for the Australian housing market (1)
• Clearly, a prolonged of low interest rates creates the potential for price pressures to build in the housing market.
• The demand/supply fundamentals of the housing market have been tightening for several years - Many individuals/households have been delaying purchase/household formation decisions due to economic uncertainty, heightened job security concerns and perceptions of difficult affordability.
• This ‘latent’ demand could increasingly become actual demand - Due to a marked lowering of the affordability ‘hurdle’ combined with an improving economic outlook.
• The incentive to buy now rather than wait has returned due to a recovery in house prices.
• Rising rents and lower interest rates have shifted the relative cost of renting versus buying - This will gradually attract first homebuyers back to the purchase market.
• The housing market has rebounded solidly in 2013 to date - Both sales volumes and auction clearance rates have improved and prices have lifted. Investor and upgrader demand have already rallied and a return of first homebuyers would provide further upward impetus to prices.
• That said, house prices are unlikely to ‘enjoy’ the upward gains experienced in earlier upturns, due largely to increased caution from both buyers and lenders.
• With banks controlling a record share of finance at present (in a Basel 3 environment), the market is unlikely to experience the lending excesses that contributed to earlier price booms.
• Households are clearly more cautious and debt averse following the shocks experienced in the wake of the GFC. With unemployment expected to move higher, this is not expected to change rapidly.
7
Net overseas migration rebounding strongly – supporting basic housing demand
Net overseas migration
Sources: ABS, ANZ Research
0
50
100
150
200
250
300
350
400
02 03 04 05 06 07 08 09 10 11 12Net long-term and permanent movements (monthly) Net overseas migration (quarterly)
Ann
ualis
ed t
rend
- 0
00's
8
-30
-20
-10
0
10
20
30
40
50
60
70
80
90
100
110
86 88 90 92 94 96 98 00 02 04 06 08 10 12
population gain
dwelling completions
Population gain vs dwelling completions
% deviation from trend
Housing shortage driven by rapid acceleration in net overseas migration and population
Sources: ABS, ANZ Research
9
-80
-40
0
40
80
120
160
200
240
280
320
360
400
8687 8889 9091 92 9394 9596 9798 9900 0102 0304 0506 07 0809 1011 1213 1415
Housing market balance
Shortage
Underlying demand
Surplus
Completions
Unprecedented housing shortage – deterioration will accelerate sharply in years ahead
‘000
Sources: ABS, ANZ Research
10
House prices now recovering, with a little help from the RBA and market fundamentals
Sources: Residex, ANZ Research
Median house prices
200
250
300
350
400
450
500
550
600
650
700
750
05 06 07 08 09 10 11 12 13
Sydney MelbourneBrisbane AdelaidePerth HobartDarwin Canberra
Hou
se p
rice
s -
000'
s (s
a)
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
Syd Melb Bris Adel Per Hob Dar Can
Peak to trough
Peak to current
% C
hang
e
11
0
1
2
3
4
5
99 00 01 02 03 04 05 06 07 08 09 10 11 12
%
Bris
Syd.Mel
Per.
Hob
Adel.
Source: REIA, ANZ Research
Rental vacancies tight everywhere – except Hobart and Adelaide …
Residential vacancy rate
Long-term average
12
0
100
200
300
400
500
600
700
800
900
1000
1100
83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13-200
-100
0
100
200
300
400
500Index 1972=100
Rents(lhs)
CPI(lhs)
Housing market balance(rhs)
000s
Sources: RP Data-Rismark, Residex & ABS
… consequently real rents are rising (reflecting a widening structural shortage of rental properties)
CPI: rents vs total
13
0.6
0.8
1.0
1.2
1.4
1.6
868788 8990919293 9495969798 990001020304 0506070809 1011121314
index
long run average
ANZ Rent vs Buy Index
Markets becoming more supportive for house purchase (rents rising, interest rates falling)
Sources: ABS, ANZ Research
rent
buy
14
Auction sales
Sales volumes and clearance rates have risen sharply in 2013 – particularly in Sydney and Melbourne
Sources: ABS, ANZ Research
0
100
200
300
400
500
600
700
800
900
1,000
1,100
2009 2010 2011 2012 2013
num
ber/
wee
k (t
rend
)
1
2
3
4
5
6
7
%
Sydney Melbourne Brisbane Adelaide Perth RBA target cash rate (inverted, rhs)
15
40%
50%
60%
70%
80%
08 09 10 11 12-10
-6
-2
2
6
10
14
18
22%
Auction clearance rate (lhs)
house prices(rhs)*
ann. % ch
* lagged 6 months
Auction clearance rate vs house prices
Sources: ABS, Westpac Melbourne Institute, ANZ Research
Strengthening auction clearance rates foreshadow further gains in house prices
1616
Household caution is an important factor why house prices are unlikely to enjoy previous rapid gains
Source: ABS
Household savings and credit
-5
0
5
10
15
20
25
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
y/y
% c
hang
e /
per
cent
Household savings rate (%) Household credit growth
Fore
cast
17
Key risks/impact of extended low interest rate environment for the Australian housing market (2)
• From a risk perspective, even if prices do rally strongly the question is what could drive a sharp retracement?
• Unlike offshore markets where home prices collapsed, the fundamentals in Australia are far more supportive – hence downside risks are far more limited. No excess housing supply, but rather unprecedented housing shortage/pent up housing demand. Low vacancies supporting rents and investor demand.
• Lending standards are clearly tighter now than pre-GFC (bank standards have tightened and the ‘cowboy fringe’ has disappeared). No sub-prime, limited low doc.
• Relative to purchasing power, house prices appear ‘undervalued’ at present.
• The mortgage market is in good shape (low dynamic LVR, falling interest rates mean majority well ahead of scheduled repayments, low delinquency, extremely low loss rates).
• Household balance sheets have been rebuilt, increased savings & deposits.
• True, risks remain in some market segments.
• Booming mining centres (in regional WA, Qld, Darwin) have experienced remarkable growth in house prices in recent years. However, falling commodity prices, a catch up in housing supply and a looming reduction in construction workforces suggest increasing price vulnerability.
• Luxury house prices are beginning to gain momentum – initially catch up follow marked falls in recent years, but potential for low interest rates and strong equity markets to drive prices above ‘fair value’ – market will be exposed to equity market corrections.
• Despite aggregate housing shortage, strong supply gains may challenge occupancy, rents and prices in certain geographic areas and dwelling types(eg. inner Melbourne high density apartments).
18
0
100
200
300
400
500
600
700
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
$'000
Actual house prices
Purchasing power - income growth and interest
Sources: ABS, RBA, ANZ Research
A large gap has opened up between purchasing power and house prices in recent years
Median house price vs. purchasing power
* Represents the average households purchasing power over the median priced home
?
19Sources: ABS, ANZ Research
The mortgage market is in good shapeDelinquency rates have fallen to around 0.4% on average
Mortgage delinquencies
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13
NSW & ACT VIC QLD WA TAS SA Australia
Mor
tgag
e D
elin
quen
cies
sea
sona
lly a
djus
ted
- 90
+ (
%)
20
Summary - Risks to the residential property market from a prolonged low interest rate environment
• A prolonged low interest rate environment could create the potential for price pressures to build in the Australian housing market, although we believe increased caution from both buyers and lenders will cap any over exuberance
• ‘Latent’ demand could transform into actual demand due to improved affordability
• Incentive to buy has returned due to a recovery in prices
• Relative cost of renting vs buying has sifted
• Sentiment and market activity have improved
• But increased caution from lenders and buyers should curb strong house price gains
We look for a ‘Goldilocks’ recovery in Australian house prices
• The conditions required for a sharp retracement in house prices are relatively limited
• Fundamentals are well based
• Relative to incomes, house prices appear marginally undervalued at present
• Lending standards are tighter than pre-GFC
• Household finances are stronger than pre-GFC
• Mortgage market is in good shape
• Limited possibility for forced sales
• But some segments remain at risk.
21
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Disclaimer
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1
RBA – RMBS/ABS Timeline and Data Requirements
Sep2007
Oct2008
Nov2008
Mar2009
Dec2010
Nov2011
Oct2012
Apr2013
May 2013
Jun2014
Dec2014
CLF announced –Qualifying collateral will
comprise all assets eligible for repo under
normal market operations.
Repo securities widened to include: Prime, full-doc AAA RMBS;
and A$ ABCP backed by prime,
full-doc residential mortgages (rated P-1 or equivalent)
Related party RMBS and ABCP
permitted
Repo securities widened to include: A$ ABCP rated P-1 or
equivalent; and A$ securities rated AAA,
excluding highly structured products.
Ahead of 30 June 2009, the RBA will determine whether these arrangements will need to be continued
Nov 2008 widened criteria will apply
indefinitely
New criteria implementation
date with validated, publicly available reports
Testing data templates with RBA
begins
CLF pricing of 15 basis points
announced and criteria widened to
include self securitised RMBS
RBA announces new data criteria for RMBS and
requests industry
feedback
RBA announces final RMBS
criteria, including requirement for VBA cashflow
waterfall
Responses due on VBA
cashflow waterfall
Data Fields Required Transaction: 121 Security: 72 Loan: 93
Reporting Frequency Within 7 days from each
payment date
Grandfathering Exempt from loan level
reporting if <$100m outstanding at 31 Dec 14
No exceptions if issued post 31 Dec 14
Privacy Dummy loan identifiers Loan level data restricted
to certain professional users with binding arrangements on individual identification
Data Availability Secure website managed on, or on behalf
of the information provider or through a data warehouse with secure access
Available in usable format and free of charge
Only most recent reports required Private Placements and self securitisations
are not exempt
Australian RMBSRoundtableLondon 2013with the Institutional Bank.
June 2013
Australian RMBS - Issuance
Page 2
Continued diversity in issuer type.
• Major Bank
• Non Bank Finance Institution
• Non ADI Originator
• Non ADI Originator non-conforming
• Other Bank
• Regional Bank
0
1
2
3
4
5
6
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-130
1
2
3
4
5
6
RMBS CMBS ABS
Monthly ABS Issuance 2011-2013 – Asset Class
Page 3
Sources: Westpac, S&P, Bloomberg
$A bn $A bn
0
1
2
3
4
5
6
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-130
1
2
3
4
5
6
AUD Non-AUD
Monthly ABS Issuance 2011-2013 – Currency
Page 4
Sources: Westpac, S&P, Bloomberg
$A bn $A bn
RMBS Issuance – Issuer Type
Page 5
Major banks dominated, but can now use Covered Bonds.
Sources: Westpac, S&P, Bloomberg$A bn $A bn
3.2
0.5
1.8
0.9
5.1
2.0
4.6
2.1 2.0
1.1 1.30.9
3.0
5.7
0.3
1.01.1
10.8
0
2
4
6
8
10
12
Major Bank Non BankFinancialInstitution
Non BankOriginator
Non BankOriginator - Non
Conforming
Other Bank Regional Bank0
2
4
6
8
10
12
2011 2012 2013
Australian RMBS relative value has been realised by investors who bought.....
However, potential low supply will be supporting of Australian RMBS as a strong relative value proposition.
0
20
40
60
80
100
120
140
160
180
Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
bps
0
20
40
60
80
100
120
140
160
180bps
average 2017 coveredaverage 2017 seniorRMBS
Sources: Westpac
Australian RMBS – Relative Value
Page 6
Australian RMBS Credit Performance
Page 7
Australian RMBS Credit Performance
Page 8
0.0
0.5
1.0
1.5
2.0
Jan-96 Jul-98 Jan-01 Jul-03 Jan-06 Jul-08 Jan-11
%
2
3
4
5
6
7
8
9
10%90 + Days61 to 90 Days31 to 60 DaysBank Standard Varaible Rate (RHS)RBA Cash (RHS)
Sources: S&P, RBA, Westpac
Prime Australian ArrearsImproving levels in line with an easinginterest rate cycle.
Non-conforming Australian ArrearsImproving levels in line with an easinginterest rate cycle.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12
%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0%
Full Doc SPIN (RHS) Low Doc
Sources: S&P, Westpac
Low Doc Australian ArrearsIncreasing due to a low base of assets........
Australian RMBS Credit Performance
Page 9
Challenger Millennium Series 2007-1E Trust – static Prime non-ADI pool
Challenger Millennium Series 2007-2L Trust static Low Doc non-ADI pool
Australian RMBS – Issues
Page 10
Contacts
Page 11
Origination Credit Trading Sales
David Goodman
Australia Grant Paver - Global Head of Institutional Sales
+612 8254 1771
Glenn Hodgeman +612 8204 2740
Martin Jacques
Christophe Denoux
+612 8253 3890
Brett Moorcroft Sydney+612 8204 2770 Michael Lucas - Head of Credit Sales
Credit Strategy
Singapore +612 8204 2740
Brendon Cooper
Mike Hyde Will Grice - Head of Rates Sales
+65 6309 3876
+65 6309 3858 +612 8204 2711
Chris Walter
London London
+612 8254 8676
Shafin Moledina Julian Allan - Head of Institutional Sales EU, Europe, AmericasJosh Masters +44 20 7621 7620
Macro Credit Strategy
+44 20 7621 7600 Auckland
Graeme Jarvis
Auckland David Austin - Head of Institutional and Retail Sales
+612 8204 2770
Richard Keene +64 9 363 1298+64 9 363 1298
MelbourneLaura Gionfriddo+613 9602 1900
SingaporeBrad Baker / John MeliaAndrew Tarnawsky / Paul O'Brien+65 6536 4566
JapanBloomberg Leah Tinning-SalibWBCC - Credit & ABS Strategy Publications +612 8204 2712WBCS - Westpac FI and FX Strategy New YorkWBCP - Westpac AUD Rates & Credit Pricing Dennis GormanWBCL - Westpac Non AUD Credit Pricing +212 551 1806
Craig Parker+612 8254 9116
Richard Lovell+612 8254 8254
ABS Strategy
Disclaimer
Page 12
This presentation is provided to you solely for your own use and in your capacity as a wholesale client of Westpac Institutional Bank, a division of Westpac Banking Corporation (ABN 33 007 457 141) (AFSL 233 714) (“Westpac”). Westpac expressly prohibits you from passing on this presentation to any third party. Neither this document nor any copy of it may be taken or transmitted into the United States (“US”), Canada or Japan or distributed, directly or indirectly, in the US or Canada, or distributed or redistributed in Japan or to any resident thereof. The distribution of this presentation in jurisdictions outside Australia may be restricted by law. Potential investors in such jurisdictions who come into possession of this presentation should seek advice on and observe any such restrictions. By accepting this presentation you agree to be bound by the foregoing. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.
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The Information: does not constitute an offer, proposal, invitation or a solicitation of an offer, to subscribe for or purchase any securities or other financial product or instrument; does not constitute an offer, inducement or solicitation to enter a legally binding contract; and is not to be construed as an indication or prediction of future results. The Information is general and preliminary information only and while Westpac has made every effort to ensure that Information is free from error, Westpac does not warrant the accuracy, adequacy or completeness of the Information. Westpac has no authority whatsoever to give any information or make any representation or warranty on behalf of any other person. In particular, the opinions, estimates and projections expressed in it are entirely those of the authors and are not given as an agent of any other person. The Information may contain material provided directly by third parties and while such material is published with necessary permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. In preparing the Information, Westpac has not taken into consideration the financial situation, investment objectives or particular needs of any particular investor and recommends that investors seek independent advice before acting on the Information. Any decision to purchase or subscribe for securities or other financial products or instruments must be made solely on the basis of the information contained in any prospectus, product disclosure statement or other offering circular issued by the issuer in connection with the relevant securities or financial products or instruments.
Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. Except where contrary to law, Westpac intends by this notice to exclude liability for the Information. The Information is subject to change without notice.
Westpac and its directors, officers, employees or associates may have interests in the securities or financial products or instruments referred to in this report. Westpac may receive fees and other benefits and advantages, either directly or indirectly, from transactions associated with the securities or financial products or instruments referred to in this presentation. Westpac may have acted as an investment banker or may have provided advice and investment services to the entities referred to in this presentation or in relation to the investments or products mentioned in this presentation.
An investment in the securities or other financial products or instruments in this presentation is not an investment in, deposit with or any other liability of Westpac. It is subject to investment risk, including loss of income and principal invested. Westpac does not stand behind or otherwise guarantee the capital value of investment performance of the securities or other financial products or instruments referred to in this presentation.
This presentation does not constitute an offer of securities in the US or to any US Person as defined in Regulation S under the Securities Act 1933 of the US (“US Securities Act”). The securities or other financial products or instruments described in this presentation have not been, and will not be, registered under the US Securities Act and may not be offered or sold in the US or to, or for the account of, any US Person except in a transaction that is exempt from the registration requirements of the US Securities Act and applicable US state securities laws.
