Australia’s famously sedate bond arena may be short on hair-raising moments, but the country’s banking sector was certainly not immune from the global financial crisis.
As financial scribes and analysts looked around for the next national basket case to follow the housing and banking collapses in the US, UK, Ireland and across Europe, Australia came into their sights – an obvious target given the country’s commodity-heavy economy and shallow bond market that forces its biggest lenders offshore for up two two-thirds of their annual wholesale funding needs.
With markets frozen across the globe, the implications for ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac, let alone investment bank Macquarie, were dire.
“It was a rapidly evolving situation as the markets unravelled and we considered how to provide ideas and solutions on funding. It was a terrific learning experience as we entered unchartered waters and people started putting graphs of the 1930s depression in front of us,” said Ian Campbell, head of Australian debt capital markets at Citigroup.
“These were interesting times and upon reflection it was great to be so involved in the chess pieces moving at real pace. Everyone wanted security of funding and advice on where the most depth was with limited execution risk.”
Australia’s government-guaranteed bond scheme was introduced in October 2008 and ran until March 2010, charging Double A rated major banks 70bp, Single A issuers 100bp, and Triple B rated banks 150bp. The scheme was transformational: the banks issued A$2bn in the three months before its introduction and A$73bn in the three months afterwards, A$70bn of which was guaranteed.
In all US$145bn-equivalent was printed in that format, worth 6.0% of Australia’s banking system assets – the highest percentage in the world. Local covered bond legislation was finally passed in late 2011.
“I don’t think it was so much that the major banks couldn’t fund but that Ireland and Europe had the covered bond product and guarantees first and we needed them to level the playing field to give us the same wholesale access point,” Campbell said.
Australia’s Double A rated majors emerged from the GFC in strong shape and have steadily improved their global rankings thereafter, despite scare stories around a housing bubble bursting. The RBA for its part pocketed A$4.5bn from bond guarantee fees.
