RESIMAC: Three Decades of Success
RESIMAC: THREE DECADES OF PROGRESS
The year 2015 marks the 30th anniversary of RESIMAC's foundation. In this time, the organisation has changed from a government-owned entity established to provide private-market financing to the public housing sector to one today where it is a prominent player in the nonbank sector.
Warren McLeland, RESIMAC's executive chairman, and Mary Ploughman, head of capital markets, discuss the current positioning and future strategy of the company.
RESIMAC navigated its way through the crisis amid significant industry consolidation. What strategy has the organisation undertaken over the five years since that period?
McLeland: We've always ensured that we maintain excess capacity in both our asset and liability platforms, in order that we are able to take advantage of opportunities We’re principally in the business to grow organically but, where market conditions allow, we have no issues in augmenting growth with acquisitions aligned with our enterprise strategy.
Ploughman: We have been rather successful in pursuing acquisitions regulating our M&A activities in line with our risk appetite and funding capabilities. We have closed in excess of A$2 billion (US$1.6 billion) in asset and company acquisitions over the last three years in the domestic, New Zealand and UK markets. All have been integrated into our servicing and funding platforms in a very timely manner.
Investors have responded very favourably as we’ve expanded our issuance programmes in a way which has given them more product to look at. Last year we were able to securitise acquired assets in Australia, New Zealand and the UK. The next step for RESIMAC is to expand into new asset classes.
Speaking of RESIMAC's investor relations work, and specifically its issuance programme - what advantages do you feel the firm has in funding terms?
McLeland: Where we consider we differentiate ourselves from our competitors is our ability to understand and meet the expectations of our investors over the long term. We come at our business from the perspective of the investor being the ultimate client we wish to service, in conjunction with the retail borrowers at the front end.
Ploughman: A prime example of this is a trade on which we are currently working, for which we have spent time with investors from the outset to understand where their interests and sensitivities lie. We will then try to accommodate these through aspects of duration and credit nuances in our structure.
We also pride ourselves on the provision of deal information, before and after issuance. RESIMAC has always made loan-level data available and has fostered a transparent approach to providing detailed information and data to investors – based on the understanding that they are the ultimate funders of our business.
McLeland: We have always regarded securitisation and disintermediation as irreversible trends, and so the underlying merit of the financing method never changed even though the securitisation markets suffered during the credit crisis.
As the securitisation markets have begun to recover, we have had to modify our capital model to reflect the new requirements of regulators and investors. A lot of our efforts have been geared to expanding and diversifying our investor base and issuance jurisdictions.
We are seeing more instances of disintermediation in the capital markets. This includes alternative asset managers now becoming more directly involved throughout the broader aspects of our funding programmes, not just as buyers of bonds.
Securitised markets are obviously very important to RESIMAC's business model. Exactly how important would you say they are?
McLeland: The securitisation markets are pivotal. We rely on wholesale credit markets as we don’t possess any retail deposit-funding sources. Everything we do within the business is geared towards supporting the funding model to ensure RESIMAC always has access to various forms of wholesale funding.
Ploughman: We have seen a raft of regulatory changes over the last five years, but because we are a smaller organisation we have been more dynamic in terms of our ability to respond, and therefore to continue to access global credit markets. While bank issuers are restricted by the Australian Prudential Regulation Authority, we have been able to modify our deal structures to accommodate regulatory and rating-agency changes over time.
RESIMAC has met all of its first occurring call options, even during the crisis where our refinancing costs were materially higher. This has been exceptionally well received by investors, particularly our European- and US-based relationships.
McLeland: The honouring of our calls demonstrated our long-term and future commitment to the global funding programme. While there were limited European issuance opportunities at the time, we valued our investor relationships and we felt we had a need to respect them and to meet our obligations with regards to the maturity profiles of our bonds.
How has asset performance been over the last five years?
Ploughman: We have seen our book’s performance improve significantly, which reflects tighter underwriting standards introduced during the early days of the crisis. There has also been significant consolidation in distribution channels, aided by a national regulatory and licensing regime that has resulted in higher standards among mortgage-industry participants.
We have also created a stronger model by vertically integrating our origination sources, and this has further enhanced asset quality. RESIMAC now owns an aggregation platform, with in excess of A$12 billion in loans, and an online channel, both of which have translated into a better performing diversified book.
McLeland: They have also given RESIMAC greater control over its revenue, as we no longer have to pay remuneration to third parties. Our ability to leverage our technology capabilities has been a real enabler of establishing and building these proprietary channels.
How has RESIMAC's investment in technology and systems benefited its growth aspirations?
McLeland: Our proprietary asset management platform is a core attribute of RESIMAC. We have continued to make significant capital investment in the platform, to ensure it meets the requirements of both the asset and liability side of the organisation.
Our primary objective with our systems is for them to be as flexible and scalable as possible in order to support growth aligned to strategy, while also offering efficiency and productivity outcomes and comprehensive management information systems reporting.
Ploughman: Owning our platform enables us to respond to opportunities, in the market and in terms of product development, with a degree of control and governance we would not have if using third-party providers.
Do you see any opportunities for RESIMAC in light of forthcoming regulatory changes facing the banking sector in Australia?
McLeland: It is quite clear that there will be noticeable regulatory changes to the requirements around the capital adequacy of banks, and also increasing scrutiny on their mortgage portfolios. These could, ultimately, result in an increase to the mortgage pricing banks offer. On a selective basis, we may be able to realise a competitive advantage in a pricing sense.
How do you see RESIMAC positioning itself over the next five years?
McLeland: I think we’re at a fork in the road with respect to future positioning. The shareholders and board want to see RESIMAC’s footprint expanded in Australia while simultaneously looking at strategic opportunities offshore, where there are complementary operating environments that would allow us to replicate the RESIMAC business model across international jurisdictions.