Let us not forget that SVR originates its loan book each year to...

Let us not forget that SVR originates its loan book each year to the tune of 500 million plus. Its book will hit 1 billion soon. So the loans they write can have up to 6 years cycles, but their customers (many are repeats) are far more volatile than that. If you make a mistake as Svr has done, those numbers suggest it won’t last long.

So Svr has a capacity to do its core business at a far greater scale than ever before. The market cares little right now but such scale has taken time, resources, expertise to create over time. That stuff is their entire business as loan receivables come and go.

Maybe I wouldn’t have hedged the entire book myself. If this was the worst than can happen, as my mind’s eye sees the former Reserve Bank boss ‘dancing to a Justin Timberlake song’, I’d hate to see what success looks like.

Again, the beauty of this business is its simplicity and transparency. The cash it generates has nowhere to go other than dividends and buybacks. There are no holes to dig in the Pilbara or whatever.

Based on their current financing, the loan book can apparently grow to 1.3 billion, without additional capital. I don’t understand their exact mechanism, but at least notionally, once SVR writes loans, they bundle them all up against the relevant wholesale finance instrument…..so effectively, their cash pile just sits to the side, unused, presumably to make sure 1 year is not a catastrophic disaster.

Given the short timeline of loans, the transparency of accounts and this mode of business (its at least notionally ‘securitised’ I think is the word), it adds up to a very conservative way of operating. I personally may take more risks, but I’m glad they don’t, as an outsider.