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Markets could recover by Christmas

Staff Reporter 2 minute read

Tightening global liquidity has rattled Australia's lending industry, with rising funding costs disrupting the long-term plans of industry heavyweights. But some observers are confident that a recovery is on the way before the New Year.

Fariborz Moshirian, Professor of Finance at the University of New South Wales (UNSW) and editor of the Journal of Banking and Finance, is not surprised by the impact on the mortgage industry of current market conditions, but predicts the industry will soon see better days.

"Obviously the sub-prime problems in the US have hit the markets everywhere. It's just not a good time to be selling [mortgage companies]," Moshirian told Mortgage Business.

A recent example of the impact of the liquidity crisis on the domestic market is ANZ's decision to shelve plans to sell its wholesale lending business Origin. Other lenders, such as aggregator Australian Finance Group (AFG), have put plans to float on hold.

Despite the current climate however, Moshirian is confident that a turnaround is on the horizon — with a market recovery possible as early as December.

"Lower interest rates in the US and a strong Asian economy should see mortgage credit problems in Australia diminish over the next month or so," Moshirian said.

"The current crisis will not be a problem in the long run."

Firstfolio CEO Mark Forsythe backs Moshirian's prediction.

"The US, European and Australian economies are strong and resilient. We're not going to see the Australian market turned into a train wreck — this is a short-term issue and the global markets are ok,"Forsythe said.

ING Direct's head of treasury, Glenn Baker, is less confident of predicting an imminent turnaround in the market.

"Once disclosures are made, and then analysed, people will have a better understanding of the risk currently involved with credit," Baker said.

However, Baker is certain that the days of cheap funding will not return.

"Pricing had been too aggressive, which drove credit spreads down. While we can expect prices to improve they won't return to previous levels."

 

Tightening global liquidity has rattled Australia's lending industry, with rising funding costs disrupting the long-term plans of industry heavyweights. But some observers are confident that a recovery is on the way before the New Year.

Fariborz Moshirian, Professor of Finance at the University of New South Wales (UNSW) and editor of the Journal of Banking and Finance, is not surprised by the impact on the mortgage industry of current market conditions, but predicts the industry will soon see better days.

"Obviously the sub-prime problems in the US have hit the markets everywhere. It's just not a good time to be selling [mortgage companies]," Moshirian told Mortgage Business.

A recent example of the impact of the liquidity crisis on the domestic market is ANZ's decision to shelve plans to sell its wholesale lending business Origin. Other lenders, such as aggregator Australian Finance Group (AFG), have put plans to float on hold.

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Despite the current climate however, Moshirian is confident that a turnaround is on the horizon — with a market recovery possible as early as December.

"Lower interest rates in the US and a strong Asian economy should see mortgage credit problems in Australia diminish over the next month or so," Moshirian said.

"The current crisis will not be a problem in the long run."

Firstfolio CEO Mark Forsythe backs Moshirian's prediction.

"The US, European and Australian economies are strong and resilient. We're not going to see the Australian market turned into a train wreck — this is a short-term issue and the global markets are ok,"Forsythe said.

ING Direct's head of treasury, Glenn Baker, is less confident of predicting an imminent turnaround in the market.

"Once disclosures are made, and then analysed, people will have a better understanding of the risk currently involved with credit," Baker said.

However, Baker is certain that the days of cheap funding will not return.

"Pricing had been too aggressive, which drove credit spreads down. While we can expect prices to improve they won't return to previous levels."

 

Markets could recover by Christmas
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