Liberty staying the course

Liberty Financial (Liberty) is continuing to build out its securitisation and senior-unsecured market presence as its growth and, consequently, its funding requirements continue apace. Peter Riedel, chief financial officer at Liberty in Melbourne, discusses the funding task as well as the company’s strategic plans.

Liberty seems to have been less active as an issuer – in public markets at least – this year. Has your funding strategy changed at all in 2019?

The strategy is consistent with recent years. So far this year we have executed one private and one public residential mortgage-backed securities (RMBS) issue in secured format.

Global markets were quite unstable in the first quarter so we waited until the second quarter to issue. Fortunately, investors engaged positively with this approach, allowing us to execute one of our largest-ever public issues at A$1.4 billion (US$942.1 million).

We will have more activity in securitisation markets before the end of 2019 as we are preparing at least two more public transactions this year. These will include our annual programmatic issues of SME asset-backed securities (ABS) in September and auto ABS in November. There is potentially scope for us to issue another RMBS deal as well, depending on demand.

Liberty brought three senior-unsecured deals to market between 2015 and 2018, and two so far in 2019. How would you like this programme to develop? Is there a desire for more volume or tenor, especially in the context of an Australian credit market that seems to be growing in depth and breadth?

Our strategy has always been to establish a consistent issuance programme. We seek to build investor confidence in the programme which, in turn, results in positively performing bonds. Issuing frequently allows investors to observe our own curve rather than relying on benchmarks against others.

The programme has developed over time. For instance, we have moved to a floating-rate rather than a fixed-rate format. We have also noted an increase in demand for tenor, which reflects investor confidence in our programme. Pleasingly, we issued a 3.5-year series in September 2019 which is a slight extension to our previous three-year transactions.

The purpose of the programme remains the same: to issue notes and use the funding to acquire new receivables. The programme provides more funding flexibility and durability, and accesses a more diversified investor base.

You have been vocal in the past about your view that losses are a better indicator of lending-book performance than arrears. Why is this, and what sort of feedback do you get from investors on the topic?

My sense is that investors agree that losses are the true indicator of performance. The market tends to examine and comment on arrears as this is the metric that is regularly reported, particularly by rating agencies. Strangely, they seem not to focus on loss performance. But our view is that loss is the true measure of a lender’s risk-management strategy.

We risk-assess each customer and offer loan terms consistent with this risk, with the objective of achieving a no-loss outcome. This approach creates a perfect alignment of interest between our customers, our investors and us. This is the true measure of risk management – and investors agree.

Liberty’s growth in profit and assets rose significantly in 2018, bolstered by the acquisition of Moneyplace and the integration of National Mortgage Brokers. Is it fair to say that growth should be expected to moderate this year in the absence of the boost from major acquisitions? What is the growth strategy overall and how is Liberty making sure it builds market share?

We are focused on delivering best-in-class customer experience. By this I mean both types of customers: our brokers and the end borrower. This means we are concentrating on developing innovative customer solutions and processes in order that we can be front of mind when customers choose with whom to engage as their lender.

We seek to be easy to deal with and to deliver certain and consistent risk decisions. In this way customers can rely on our service proposition. Staying ahead of our competitors in this context allows us to continue to outperform the market when it comes to growth rate.

This is the way we have always grown the business and it is how we will continue to drive growth.