2 September 2008
ST GEORGE BANK has returned to one of its more traditional sources of funding - the once-cheap home loans investment market - to raise just over $1 billion towards its estimated $12 billion financing needs for the current year.
But unlike the wider Australian commercial market that used to snap up such issues of residential mortgage-backed securities (RMBS), the country's fifth-largest bank has managed to tap European investors in a private fund-raising issue.Global RMBS markets have been effectively closed for the best part of a year after investors fled the sector following the US subprime loans debacle and the global credit crisis, which saw such investments plunge in value.As a result, debt financing dried up and those investors who were prepared to lend money hiked the cost of borrowing to such high levels that it made affordable credit very hard to come by.Since then, there have been very few issues of mortgage-backed securities even in the more secure Australian market where almost all of the offerings have been "prime" loans backed by well-priced assets.But certain investors, including large pension funds across Europe, have over the past few months been increasingly keen to take on packages of Australian home loans, albeit at much higher rates of interest.In turn, this has attracted borrowers who have responded with loan offerings through direct private placements rather than wider public issues.That culminated in yesterday's announcement by St George that it had raised $1.1 billion at a rate which it said was "comparable" to that charged to other Australian banks.In recent months, the Big Four banks - Commonwealth, National Australia Bank, ANZ and Westpac, St George's merger partner - have been paying on average between 110 and 120 basis points (just over one percentage point) more than the official cash rate in short-term money markets.St George's latest move also saw it complete 40 per cent - or $4.6 billion - of its 2009 funding requirements. Its chief executive, Paul Fegan, said it was a reflection of investor confidence in the bank's operations."Given this advanced position, we do not see the need to raise any substantial new term funding in the near future," he added.