Jonathan Shapiro| Australian Financial Review|18 December 2017
Australia’s $1.7 trillion mortgage market has become a hotspot for global private equity titans with more buyout funds tipped to follow Blackstone and KKR’s recent forays into the shadow banking sector.
On Monday, New York-based Blackstone announced it had taken an 80 per cent stake in Melbourne-based lender La Trobe Financial that will provide the 65-year-old privately owned lender enough capital to double its $4.6 billion lending book within three years.
The deal, flagged by The Australian Financial Review’s Street Talk column, comes as the banking sector faces increased lending constraints, paving the way for competitors to grow their market share.
“The market has just changed tectonically in the last two years and it’s not going to change back any time soon,” La Trobe chief executive officer Greg O’Neill told the Financial Review.
“The consumer still needs to borrow for their home loan and their businesses and that’s what we do as an alternative credit provider.”
Mr O’Neill will retain a 20 per cent stake in the business and is expected to remain in his role for the next five years. He said Blackstone was attracted to the opportunity to build scale in Australia, given the maturity of the market, the lack of sub-prime borrowers and no low-wage base.
Blackstone is one the largest private equity funds, and the largest property investor, in the world. It already has substantial investments in non-bank lenders in the in the US and Britain and is a substantial direct lender in its own right.
The rise of the non-bank lenders is a global phenomenon, Mr O’Neill said, as the likes of Blackstone expand their role in debt markets.
“The spectrum of credit that the banks have historically dealt with is becoming narrower,” he said.
The deal, for an undisclosed amount, follows the $675 million takeover of listed non-bank lender Pepper by KKR this month.
“If we are reading the tea leaves correctly, we think there will be other acquisitions in the coming months,” Mr O’Neill said.
The major banks have been hit with lending limits imposed by the prudential regulator, aimed at curtailing credit-fuelled property speculation. The non-banks have picked up the business their larger rivals have been forced to turn away.
They have also benefited from increased lending rates while securitisation markets have provided the sector with $13.2 billion of wholesale funding, the most since the global financial crisis.
Mr O’Neill said the Australian Prudential Regulation Authority’s so-called macroprudential policies have created clear opportunities for the non-bank sector.
“The non-banks are rising again but they’re rising in a different shape and form than they have in the past. We are at that turning point and are almost back to the 1970s, where you could envisage 10 or 15 per cent of the [mortgage] market being held outside of the banks – and that’s not new for the country.”
While the non-bank lenders, which do not take customer deposits, are not subject to APRA lending restrictions, they are subject to responsible lending oversight.
As more lending activity migrates to the so-called shadow banking sector, APRA has been granted new powers that will allow it to regulate the non-banks. They are powers APRA has suggested it is reluctant to use.
La Trobe is also a significant lender to non-residents such as Chinese property buyers that are also finding it harder to access loans from the banks.
Mr O’Neill said non-residential lending was not the “sole focus” of Blackstone’s plans to scale up its lending in Australia.
“It will be very much focused around incremental growth – not just lending for the sake of lending – and having a high regard to responsible lending criteria.”