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Deals break new ground

Australia's financial markets have hit the headlines this year. While Australian dollar-denominated Eurobonds have been in vogue with European investors, privatization and a changing mortgage market have spurred a wave of issuance by Australian companies. Albert Smith looks at some of the landmark deals.

Forget big deals such as the A$200 million (US$148 million) Eurobond issue from National Australia Bank (NAB) or the syndicated loan for Telstra Corporation worth A$3 billion, the truly ground-breaking Australian deal of the past 12 months was an issue arranged by JP Morgan worth only A$30 million. This is the deal that has allowed a new generation of mortgage providers to challenge the near monopoly of Australian banks in the home loan mortgage market. The consequence may be one of the most dramatic upheavals yet seen in Australian retail banking.

Years ago the main non-bank mortgage providers were building societies, which lent at rates usually a few points above bank loans. The most successful building societies eventually turned into banks and much of the differentiation between loan products disappeared.

Over the past few years new mortgage providers have emerged with a fresh marketing edge: they offered loans priced below the most competitive bank loans. With no branch networks to maintain and tiny overheads, the mortgage providers have prised a small but significant proportion of new lending business away from the banks.

While able to generate adequate funding from the burgeoning domestic mortgage-backed securities market, leading non-bank mortgage providers were limited by the availability of competitively priced capital.

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