Mortgage-backed paper from ÜBS

Press, 5 April 1989, Page 36

Mortgage-backed paper from ÜBS

By

PATTRICK SMELLIE

in Wellington The United Building Society yesterday made its strongest pitch yet for the establishment of a secondary mortgage market in New Zealand. Announcing the first placement by a New Zealand financial institution of a mortgage-backed Eurobond issue, the society’s managing director, Mr Colin Jenkins, called on other financial institutions to recognise the benefits of such a market.

While secondary mortgage markets and the “securitisation” of home mortgages were common in Europe, the United States, and Britain, it had been slow to catch on here. Benefits for banks from such a market were increased balance sheet flexibility, more depth and greater ability to allocate funds efficiently, while it would assist in lowering interest rates for

borrowers, Mr Jenkins said. “But a secondary market needs a number of reasonably large and consistent players," he told an audience of key banking leaders. “We do face a potential Catch 22 situation here, with possible players all sitting back saying ‘Yes, we’re interested, but only when the market has developed some depth’.” Courage was required if such a market was to succeed. ÜBS management said also that for a secondary market to develop in New Zealand, institutions would need to develop a standard form of paper that could be traded. Investors needed an instrument they could easily understand, and would not be interested if different institutions established differing types. ÜBS general manager finance, Mr Nic Cooper, hailed the Christchurchbased firm’s Eurobond placement as a world first

for the international capital markets. Moreover, it had received the rare stamp of approval of a AAA credit rating from the international rating agency, Standard and Poors, a rating of AAA from Moody’s, and AAA from the Nippon Investor Service. The issue which was for SUSIOO million of mort-gage-backed fixed rate bonds on the United States dollar Euromarket, was sold out within hours of launching in London in mid-March. The bonds are guaranteed by the New Yorkbased bond insurer, Financial Securities Assurance Inc. They will be listed on the Luxembourg Stock Exchange. The issue was arranged by ÜBS in conjunction with Bankers Trust New Zealand, Ltd. Unique features of the issue, according to Mr Jenkins, were the bonds’ three-year term with full

repayment of capital on maturity, along with the fact that it was a “cross border securitisation.” This is where one country’s mortgages are used to back securities in another country’s dollars. “The Eurobond market is one of the most liquid in the world with its greatest depth being in United States dollars,” said 4 Mr Jenkins. The success of the issue could pave the way for the rapid development of a domestic secondary market. “United’s intention is to use the structure of the securitisation to provide New Zealand investors with similar high quality and liquid securities,” he said. ÜBS mortgageholders would experience no alteration as a result of the deal, or of the development of a secondary market, he said. The society would continue to administer its mortgages in the usual way.