Ann: FY24 Results Announcement, page-54

P13 of AR2024 is a bit ambiguous about the Forward Flow deal but I think Humm intends that these will all be new assets- not a sale of existing loans to MAF out of Humm’s financing trusts. The proposal in effect substitutes for Humm putting loans on its balance sheet (with their associated securitisation borrowings); MAF will take on both the assets and debts. In exchange Humm will earn fees and a small annuity return.

P15 of the results presentation spruiks the benefits of the MAF deal, but I think they won’t be very large. P29 shows NIM for Commercial is only 3.5% pa on loans, and credit losses 0.7% pa. Since MAF will take all the credit risk I expect they will be cautious in a base case- say a 1% loss allowance. This would give a net return of about 2.5% pa, to be shared by MAF and Humm. From thus Humm will be paid servicing and origination fees and an excess spread (not defined). I assume that MAF would gear up its returns by about 20: 1, using 95% external wholesaledebt and 5% MAF client funds to supply the equity in the deal (in effect doing exactly what Humm currently does on its balance sheet). The MAF clients would want roughly a 15% pre-tax return for taking the high-risk (equity) part of the funding, hence 15%/20 = 0.75% of the gross return. MAF will want to earn fees of at least 0.5% perhaps 0.75% pa to package all this. Thus the total expected 2.5% net return might be split: 0.75% to MAF clients (to be geared 20 times), 0.75% pa for MAF itself, and I guess that Humm would earn a total of 1.0%pa, certainly no more than 1.5%pa. Out of this would come Humm’s operating costs of doing the origination, credit assessment and account servicing (although it already does these functions so perhaps the marginal extra cost will be small).

If the AFR figure of $1B target is correct, Humm may earn $10m pa, at best $15m pa, pre tax from this once the $1B is fully committed. From that Humm will have to cover its own costs. This would be a clever idea if Humm was strapped for cash, but it isn’t. I’m not convinced that the result is better for Humm than the status quo. As others have said, it’s unclear who decides which new assets will go to the MAF pool and which ones stay on Humm’s balance sheet. There is a risk that the deal will cannibalise Humm’s asset growth, and perhaps also its asset quality.