I think there is two parts to this story and the more I think...

I think there is two parts to this story and the more I think about it the more I’m beginning to believe that things aren’t as good as management are trying to have us believe

Firstly on the facts - there was definitely a change in the reporting basis of the arrears and On the face of it; it looks absolutely horrible.

second fact there are reasons for this one being IFRS9 and second which is less creditable is use of warehouse funding (note my comments below on funding)

Third they are entering a riskier part of the market in my view being less than prime equipment to less than prime borrowers. With wheels being notoriously difficult to make a decent dollar

Now for speculation - SIV.AX clearly had a bad experience in funding wheels to the point that they’ve (under some duress) decided to exit that market. Market feed back is that a lot of the distribtion team from go getta (SIV) ended up at at AXL. (Look as some of the sales employees on linked in)

We also know that SIV we’re running more than 15% if the book at more that 90 days delinquent. Not great; albeit the way they managed their assets brought loss rates down

We also know that the AXL CFO left abruptly. Yes he was a kid; it still smells

Bring all this together the cynic in me says: they’ve used a change in accounting policy to hide a deteriorating credit position brought on by 1. Entry into a weaker market and 2. Finding it difficult to grow 3. With a lack of experience at scale and what looks to be a bit of an internal malaise

The plus for me is losses are coming off a low base; growth is strong


Re the ‘use of securitisation industry standards!’ I find less credible because I can’t understand why a funding program is driving a change in accounting treatment. I’d understand if they say went from an on bs to off bs lending model or moving from debt financing to leasing as part of this but there is no credible reason for this warehouse to drive a funding program change

Guy feel; until we know the truth market will be (continue) applying a credibility discount

There will be some winners and losers in this one