Hi grimloq I went back to your earlier post here after my earlierreply today. You make good points here. HUM has provided scant detail so thesepoints are worth checking at the agm.
Re your third Para, I agreethat does appear to be an important timing benefit- providing HUM can convincethe auditors that the terms of the MAF deal are 100% non-recourse. However, Iexpect that the auditors would insist that HUM makes a provision on its balancesheet to allow for its future servicing costs; i.e. if HUM is allowed to take upthe fees to P+L immediately it would be required to set aside some of the “profit”to cover its future operating costs in servicing the loans for perhaps 5 years.
Re point 2. The pricing split with MAF will have to allowfor likely level of credit losses: until recently these have been extremely lowin Commercial, at 0.5%, recently rising to 0.7%. I guess that MAF will insiston a slightly higher allowance, as it is taking all the risk. However, a big benefitit is that accounting standard AASB9 forces HUM (now) to make a provision atthe highest experienced rate over all the assets in a given category, even ifthe actual average loss experience is much more benign. I understand HUMis forced to provision now at 2% on Commercial, even though its average actual experienceis only 0.7%. This over-provisioning problem will shift to MAF: they may not careas their clients’ funding trust will not be listed and will probably distributereturns to clients according to cash flow, not accounting profit.
Re point 1. I respectfully disagree. Most or all lenders usesuch funding structures (SPVs), especially those that solely provide loans, unlikethe diversified banks, who also have a huge base of cheap deposit funds. Finance cos just couldn’t make enough profitif they wrote all their loans on balance sheet funded by corporate borrowings at much lower gearing. HUM, and peers, knows thatthe SPVs are their lifeblood and plan ahead.At every reporting date HUM shows 20%+ extra funding capacity beyond whatit’s using at that date.Note 11 of the ARgives good info about the SPVs. HUM writes the loans initially on its own balancesheet; these are then transferred to the funding trusts in packages of say $5mor $10m, after a delay of about 2 to 4 weeks, and HUM gets the cash back to recycle.We don’t know the exact protocols between HUM and the managers of the SPVs (usuallyspecialists like investment banks, who manage the SPVs on behalf of thewholesale financiers).These processeshave been running smoothly for many years: I don’t believe there have been delaysin exchanging the loan assets for SPV cash.
(20min delay)