Australian Securitisation Investor Seminar 2019 - Australian Securitisation Forum
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Australian Securitisation Investor Seminar 2019
Opening Remarks Pablo Castro Product Manager, Bloomberg LP
Australia’s economic outlook and consequences for a declining housing market Moderator: Laurence Davison, KangaNews Presenters: Bill Evans, Westpac Tapas Strickland, National Australia Bank
UK Securitisation event 2019 Westpac Institutional Bank Presented by Bill Evans June 2019.
The Economy Note: Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts. 2
Australian GDP growth outlook
% yr 2018 2019(f) 2020(f)
GDP – RBA (May) 2.3 (a) 2.60 2.75
GDP – Westpac 2.3 (a) 2.2 2.5
Consumer – RBA 2.0 (a) 2.0 2.6
Consumer – Westpac 2.0 (a) 2.1 2.4
Source: ABS, RBA May Statement on Monetary Policy, Westpac Economics
3
Household savings ratio – set to rise
% income % income
12 12
9 9
6 6
3 3
0 0
Sources: ABS, Westpac Economics
-3 -3
Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14 Dec-18
46m annualised change in the 2qtr average
Six month annualised change in two
quarter average
Professional
Cyclical Non-cyclical Total
services
Feb-2016 2.0 2.5 5.4 2.5
Aug-2016 0.6 2.9 -1.6 1.1
Feb-2017 0.5 2.0 0.4 1.0
Aug-2017 3.8 6.3 -2.4 4.1
Feb-2018 2.9 1.5 5.0 2.6
Aug-2018 1.4 3.0 6.8 2.3
Feb-2019 -0.4 5.6 7.9 2.2
Sources: ABS, Westpac Economics.
*Non- cyclical is agriculture, utilities, public admin & safety, education, and health.
*cyclical is the residual of total – non-cyclical – professional services
5Labour market to weaken; slack already
% %
10 7.5
underemployment smoothed (lhs) Westpac fcs 7.0
9
unemployment smoothed (rhs) 6.5
8 6.0
5.5
7 5.0
Underemployment: the share of 4.5
6 labour force who are employed
and willing to work more hours 4.0
Sources: ABS, Westpac Economics.
5 3.5
Dec-02 Dec-06 Dec-10 Dec-14 Dec-18
6Victorian wages are more responsive
%yr
10 % inverted 4.5 % yr
NSW Victoria % inverted
Sources: ABS, Westpac Economics
10
11 4.0 11
12 3.5 12
13 3.0 13
14 2.5 14
15 undertilisation 2.0 wages (lhs) 15
leading 2 qtrs (lhs)
16 1.5 16
Dec-99 Dec-05 Dec-11 Dec-17 Mar-00 Mar-06 Mar-12 Mar-18
7Wages growth sluggish at best
% ann
7
6 WPI EBA all current
5
forecast
4
3
2
Sources: ABS, Westpac Economics, RBA, Commonwealth Treasury
1
Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14 Dec-18
8Core inflation – just not reaching band
%yr %qtr
6 3.0
avg RBA core CPI* %qtr (rhs)
5 2.5
avg RBA core CPI* %yr (lhs)
4 * average of s.a. trimmed mean & Forecasts
2.0
weighted median CPI.
3 1.5
2 1.0
1 0.5
0 0.0
Sources: ABS, Westpac Economics
-1 -0.5
Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Dec-18 Dec-20
9Housing Note: Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts. 10
Dwelling prices: all cities are now falling!
% %
30 30
25 Sydney
Melbourne 25
20 Brisbane 20
15 Perth 15
10
10
5
5
0
-5 0
-10 -5
-15 * all dwellings, 6mth annualised -10
Sources: CoreLogic, Westpac Economics
-20 -15
Mar-11 Mar-13 Mar-15 Mar-17 Mar-19
11Australian dwelling prices – falls easing
%ann %mth
21
18 mthly (rhs) annual (lhs) 6
15
12 4
9
6 2
3
0 0
-3
-6 -2
-9 Sources: CoreLogic, Westpac Economics
-12 -4
Apr-07 Apr-09 Apr-11 Apr-13 Apr-15 Apr-17 Apr-19
12Sydney dwelling prices – falls easing
%ann %mth
21
18 mthly (rhs) annual (lhs) 6
15
12 4
9
6 2
3
0 0
-3
-6 -2
-9 Sources: CoreLogic, Westpac Economics
-12 -4
Apr-07 Apr-09 Apr-11 Apr-13 Apr-15 Apr-17 Apr-19
13Consumer sentiment: ‘time to buy a dwelling’
170 index index 170
NSW Vic Qld WA latest
150 latest 150
130 130
110 110
90 90
70 70
*3mth avg
Source: Melbourne Institute, Westpac Economics
50 50
May-06 May-10 May-14 May-18 May-06 May-10 May-14 May-18
14Auction clearance rates vs prices: Sydney
% %
'withdrawal adjusted' clearance rate (lhs)* estimates for 7.5
90 unadj'd clearance rate (lhs)
latest week
(solid is
80 price growth (rhs)^ withdrawal 5.0
adj’d rate)
70 2.5
60
0.0
50
-2.5
40 *clearance rate minus withdrawal rate devn from avg;
^centred rolling 3mth %ch Source: APM, CoreLogic, Westpac Economics
30 -5.0
May-03 May-06 May-09 May-12 May-15 May-18
15NSW: housing affordability
% %
12 12
*%income required to save a deposit and
14 service mortgage of 75% of median priced improve 14
16 dwelling (avg over 5yr pre-purchase and 5yr 16
post purchase periods)
18 deteriorate 18
20 20
22 22
24 24
26 30yr
avg 26
28 projection includes rate cuts
28
30 Sources: CoreLogic, ABS, and assumes prices rise 10% 30
Westpac-Melbourne Institute over next 12mths
32 32
Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 Mar-13 Mar-16 Mar-19
16NSW: affordability & buyer sentiment
index %
200 12
affordability (rhs)* 14
180 *%income required to save a deposit and service mortgage of
75% of median priced dwelling (avg over 5yr pre-purchase and 16
160 5yr post purchase periods) 18
140 20
120 22
improve
100 30yr 24
avg 26
80 deteriorate
projection includes rate cuts and assumes
28
60 Sources: CoreLogic, ABS, prices decline at 5% annual pace over 30
Westpac-Melbourne Institute remainder of 2019 and are flat in 2020
40 32
Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 Mar-13 Mar-16 Mar-19
17NSW price corrections: affordability drivers
pts contribution to improvement pts
10 10
9 mortgage rate and incomes prices 9
^2017-20 projection assumes 50bp rate cut
8 and a further 3.8% decline in prices
8
7 7
Source: ABS, RBA, Westpac Economics
6 6
5 adjustment 5
to date
4 4
3 3
2 2
1 1
0 0
1990-93 2007-08 2010-12 2017-20^
18Vic price corrections: affordability drivers
pts contribution to improvement pts
10 10
9 mortgage rate and incomes* prices 9
8 ^2017-20 projection assumes 50bp rate 8
cut and a further 10% decline in prices
7 Source: ABS, RBA, Westpac Economics
7
6 6
5 5
adjustment
4 to date 4
3 3
2 2
1 1
0 0
1990-93 2007-08 2010-12 2017-20^
19Housing finance, NSW – hit to investors
AUDbn/mth value of housing finance AUDbn/mth
5.0 5.0
'upgraders' peak to latest
4.5 4.5
investors
4.0 foreign buyers* 4.0
3.5 FHBs 3.5
3.0 *based on annual –24% 3.0
FIRB approvals
2.5 2.5
2.0 –48% 2.0
1.5 1.5
1.0 –24%
1.0
0.5 0.5
Sources: ABS, Westpac Economics –82%
0.0 0.0
Feb-99 Feb-03 Feb-07 Feb-11 Feb-15 Feb-19
20Consumers extremely risk averse
‘wisest place for savings’?
60 % % 60
repay debt deposits shares real estate
50 * selected options only 50
(others not shown);
40 ‘repay debt’ only 40
surveyed since 1997
30 30
20 20
10 45yr 10
lows
Sources: Melbourne Institute, Westpac Economics
0 0
Mar-89 Mar-99 Mar-09 Mar-19 Mar-89 Mar-99 Mar-09 Mar-19
21Housing finance: largest falls behind us
% chg % chg
0 0
-2 -2
-4 -4
-6 -6
-8 -8
6 month change Westpac fc/s
-10 -10
-12 -12
-14 -14
Sources: ABS, Westpac Economics
-16 -16
2017 H2 2018 H1 2018 H2 2019 H1 2019 H2
22Australian dwelling approvals – sharp fall
'000 '000
houses (lhs)
25 units (lhs) Westpac 250
forecasts
total annualised (rhs)
20 200
15 150
10 100
5 50
*3mth avg, dotted lines are monthly
0 0
Mar-04 Mar-07 Mar-10 Mar-13 Mar-16 Mar-19
23Australia’s housing stock balance
'000 '000
380 380
estimated housing stock deficiency Westpac
330 330
dwelling completions (qtly, annualised)
280 280
underlying
230 230
180 180
130 130
80 80
30 30
Sources: ABS, Westpac Economics
-20 -20
Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14 Dec-18
24Loans in Negative Equity – mining related
% Share of balances, Feb 2019 %
15 Source: ABS, CoreLogic, RBA, Securitisation System
15
Owner Occupier
12 12
Investor
9 9
6 6
3 3
0 0
AUS VIC & TAS NSW & SA QLD WA & NT
ACT
25The Markets Note: Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts. 26
Current forecasts – February 2019
Latest Mar 19 Jun–19 Sep–19 Dec 19 Dec 20
RBA Cash 1.50 1.50 1.50 1.25 1.00 1.00
Fed Funds 2.375 2.375 2.375 2.375 2.625 2.625
AUD/USD 0.717 0.71 0.70 0.68 0.68 0.70
Source: Westpac Economics.
2721 February markets – Westpac calls cut
USD %
0.722 Jobs print +39k Westpac makes call 1.72
vs. expected +15k for 25bps rate cuts
in Aug and Nov 1.70
2019
0.719 1.68
1.66
0.716 1.64
AUD/USD (lhs)
1.62
Aus 3yr bond future yield (rhs)
0.713 Sources: Bloomberg, Westpac Economics 1.60
11:00am 11:30am 12:00pm 12:30pm 1:00pm
28Westpac forecast and market RBA pricing
% %
Market 20 Feb**
1.6 Market now* 1.6
Westpac forecast
1.4 1.4
1.2 1.2
1.0 1.0
0.8 0.8
Sources: Bloomberg, Westpac Economics
*Pricing as at 23 May
0.6 0.6
Mar 19 Jun 19 Sep 19 Dec 19 Mar 20 Jun 20
29Current forecasts – May 2019
Latest Jun–19 Sep–19 Dec 19 Dec 20
RBA Cash 1.55 1.25 1.00 0.75 0.75
AU 10 year 1.60 1.60 1.65 1.70 1.90
Fed Funds 2.375 2.375 2.375 2.375 2.375
US 10 year 2.35 2.40 2.50 2.60 2.55
3yr swap 1.20 1.20 1.15 1.10 1.30
AUD/USD 0.69 0.69 0.68 0.66 0.68
Source: Westpac Economics.
30RBA: major bank’s deposits by interest rates
*Interest rates were
reported as weighted
average rates for various
deposit product types
Source: RBA, Major Banks
31Funding spreads and the cash rate
3.0 % % 3.0
Sources: Bloomberg, Westpac Economics
2.5 2.5
2.0 2.0
1.5 AUD OIS 3m 1.5
RBA cash rate
AUD implied by fwds 3m
BBSW 3m
1.0 1.0
Jan 14 Jan 16 Jan 18
32Westpac forecasts – Aus-US spread
bps bps
0 0
-50 -50
-60
-100 -80 -85 -90 -85 -80 -100
-113
-150 -138 -150
-163 -163 -163 -163
-200 Cash spread -200
Source: Westpac Economics 10 year bond spread
-250 -250
Jun 19 Sep 19 Dec 19 Mar 20 Jun 20 Dec 20
33AUD – rate differential and commodities
USD ppts USD Index
8
AUD/USD lhs
1.2 AU-US 2y swap rhs 1.2
6
6
1.0 1.0
4
0.8 0.8
2
5
0.6 0 0.6
AUD/USD lhs
0.4 -2 0.4 log WCFIBI cmdty rhs
4
Jan-00 Jan-06 Jan-12 Jan-18 Jan-00 Jan-06 Jan-12 Jan-18
Sources: Bloomberg, Westpac Economics
34Wages supportive of stronger inflation?
%yr %yr
5 5
Hourly earnings
4 Core PCE inflation 4
3 3
2 2
1 1
Sources: BLS, Macrobond, Westpac Economics
0 0
2007 2009 2011 2013 2015 2017 2019
35Conclusion • Gradual rise in unemployment rate locks in rate cuts. • Current extent of house price falls in Sydney and Melbourne unprecedented but a little more to come (14%; 11% so far; another 5 % in 2019; flat in 2020 ) • Affordability more stretched than in previous cycles; reliance on prices. • Risk flashpoints : China’s current account deficit; negative equity in WA/NT. • Inflation challenged by housing downturn- rents; construction costs. • Collapse in dwelling approvals signals big drag from national residential construction in 2019 and 2020; near term o’supply; shortages from 2020 H2. • RBA’s priorities have moved from household debt to unemployment and wages. • The RBA will cut the cash rate by 25bps in June; August and November 2019; AUD to USD0.66; FED on hold through 2019 and 2020. • China stimulus to work; low inflation risk to FED policy; symmetric target; Dow. 36
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Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’).
This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration
Information in this presentation correct as at May 2019Australian RMBS, performance trends and outlook Moderator: James Kanaris, Westpac Panellists: Imran Shaffi, State Street Peter Casey, ING Australia Richard McCarthy, Perpetual Todd Lawler, Bluestone
Australian RMBS: Performance Trends
and Outlook
Moderator: James Kanaris, Director Structured Finance, Westpac
Panellists:
• Peter Casey, Deputy Treasurer, ING Australia
• Richard McCarthy, Group Executive, Perpetual Corporate Trust
• Todd Lawler, Chief Financial Officer, Bluestone
• Imran Shaffi, Vice President Global Treasury, State Street
10 June 2019
1RMBS Issuance
bn
RMBS Issuance 2004-2019 bn
70 70
Source: Westpac Securitisation & Covered Bond Research, Bloomberg
60 60
50 Non-AUD 50
40 AUD 40
30 30
20 20
10 10
0 0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Australian RMBS: Performance Trends and Outlook
2RMBS Issuance
bn ADI & Non-ADI bn Prime & Non-Conforming
25 Source: Westpac Securitisation & Covered Bond Research, Bloomberg
35 Prime
22.6 Source: Westpac Securitisation & Covered
22.3 ADI Issuance Bond Research, Bloomberg
20.9 29.0
30 Non-
19.3 Non ADI Issuance
20 26.6 Conforming
24.2
15.9
25 22.5
14.6
15 20 18.3
12.6
12.0 16.4
9.4 15
10 8.3
10.5
9.6
6.3
5.6 5.4
10 8.0
5.2
5 4.5 4.2
5 2.3 2.3
1.9
- -
2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019
Australian RMBS: Performance Trends and Outlook
3RMBS Issuance
Issuer Type
bn bn
14 14
Source: Westpac Securitisation & Covered
2013 Bond Strategy, Bloomberg
12 2014 12
2015
10 10
2016
8 2017 8
2018
6 2019 6
4 4
2 2
0 0
Major Bank Other ADI / CUBS Non-Bank Originator Non Conforming Other Bank Regional Bank
ADI ADI Non-ADI Non-ADI ADI ADI
Australian RMBS: Performance Trends and Outlook
4RMBS Issuance
2016 Currency 2017
6% 4%1%
USD USD
EURO EURO
AUD AUD
94% 95%
2018 2019
10% 7% 2%
1%
USD USD
EURO EURO
AUD AUD
89% 91%
Source: Westpac Securitisation Research, Bloomberg
Australian RMBS: Performance Trends and Outlook
5RMBS Performance
European & Australian Arrears 30+ Days Australian Prime Arrears
SPIN 90+ Days Arrears
9.00% Source: S&P,
Westpac
2.0%
8.00% Spain Securitisation
Research
1.8% SPIN 30+ Days Arrears
7.00% Italy 1.6% SPIN (Inc Non-Capital Markets
1.4% Issuance) 90+ Days Arrears
6.00% UK
1.2%
5.00% Dutch 1.0%
4.00%
Australia 0.8%
3.00% 0.6%
2.00% 0.4%
1.00% 0.2% Source: S&P, Westpac
0.00% 0.0%
Feb-09
Aug-10
May-11
May-17
Feb-12
Aug-13
May-14
Feb-15
Aug-16
Feb-18
Nov-09
Nov-12
Nov-15
Nov-18
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Australian RMBS: Performance Trends and Outlook
6RMBS Performance
Prime Australian 30+ Arrears – Investment & OO Non-Conforming Australian 30+ Arrears
2.00% Source: S&P, Westpac 25%
Securitisation Research
1.80% 90 + Days
1.60% 20%
Source: S&P 61 to 90 Days
1.40%
1.20% 15% 31 to 60 Days
1.00%
0.80% 10%
0.60%
0.40% Investment Owner-occupied 5%
0.20%
0.00% 0%
Australian RMBS: Performance Trends and Outlook
7RMBS Performance -Losses
Cumulative Gross Losses
Source: S&P
S&P: “All gross losses to date in prime and nonconforming Australian RMBS transactions have
been covered by lenders‘ mortgage insurance (LMI) claims paid and excess spread.”
Australian RMBS: Performance Trends and Outlook
8RMBS Prepayments
Australian Prepayment Rate – Prime & NC Australian Prepayment Rate – Prime
45.0% 26.0%
40.0% 24.0%
35.0% Prime 22.0%
Non Conforming 20.0%
30.0%
18.0%
25.0%
16.0%
20.0%
14.0%
15.0% 12.0%
Source:S&P Source: S&P
10.0% 10.0%
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Mar-19
Australian RMBS: Performance Trends and Outlook
9RMBS Pricing Performance
bp
Senior AAA Prime RMBS Trading Margin 2.5-3.5yr WAL
180
160
140
120
100
80
60
40 Major Bank Regional Bank Other Bank Other ADI (CUBS) Non ADI
20
Source: Westpac Securitisation & Covered Bond Strategy
-
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Australian RMBS: Performance Trends and Outlook
1011
bps
100
150
200
250
300
0
50
Resimac 16-1
Firstmac 16-2
Triton 16-1
Progress 16-1
Firstmac 16-3
SMHL 16-1
ADI
AFG 16-1
ConQuest…
Kingfisher…
Resimac 16-2
Reds 17-1
Apollo 17-1
Torrens 17-1
Light 17-1
Non-ADI
Resimac 17-1
IMB 2017-1
Australian RMBS: Performance Trends and Outlook
Progress 17-1
Conquest 17-1
Harvey 17-1
Medallion…
Triton 17-1
RMBS Pricing Performance
ABA 17-1
Barton 17-1
RESIMAC 17-2
Pepper…
Torrens 17-3
AFG 17-1
SMHL 17-1
Apollo 17-2
Firstmac 17-2
HBS 17-1
Triton 17-2
Medallion…
Firstmac 17-3
Pinnacle 17-1
Pepper…
Progress 17-2
Resimac 17-3
NRMBS…
Firstmac 18-1
ConQuest…
Light 18-1
Apoilo 18-1
Resimac 18-1
Reds 18-1
Pepper…
Firstmac 18-2
AFG 18-1
Progress 18-1
Triton 18-1
RMBS Primary Margin - AAA Subordinated
SMHL 18-2
Medallion…
Pepper…
Firstmac 18-3
RESIMAC 18-2
NRMBS 18-2
Triton 19-1
Triton 19-2
Resimac 19-1
AFG 19-1
Source: Westpac Securitisation & Covered Bond Research
Pepper 19-1
Mortgage…
Firstmac 19-2
SMHL 19-1RMBS Pricing Performance
Non AAA Prime Issuance 2017-19*
800
AA A BBB BB B Unrated
700
600
500
400
bps
300
200
Mortgage House 19-
Firstmac 2019-2
RESIMAC 19-1
SMHL 2019-1
Pepper 19-1
100
Triton 19-1
Triton 19-2
AFG 19-1
Source: Westpac Securitisation & Covered Bond Research
0
1
Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19
*Note Only Transactions With Disclosed Pricing Are Shown
Australian RMBS: Performance Trends and Outlook
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