In a speech to the Australian Securitisation Forum, the head of the AOFM, Rob Nicholls, spoke about the divestment of Residential Mortgage Backed Securities that the AOFM acquired after the GFC in order to provide liquidity to the market.
To date there has been two auctions, both of which have seen only a small amount of bonds acquired. The market has been speculating on whether the AOFM has been a “fussy seller” or whether the market is uninterested in the securities or simply fishing for a bargain from a keen seller. There has also been conjecture regarding the sales process itself and what the AOFM will do should the auctions yield unsatisfactory results. Mr Nicholls addressed some of those concerns in his speech and it was clear that the AOFM is a ‘fussy seller’ that is seeking to maximise the returns to taxpayers with minimum disruption to the market.
He went on to say that:
- there was no fixed time frame by which the securities must be sold
- there would not be a fire sale
- they expected that it would take some time for market pricing expectations to adjust, although the AOFM had underestimated the extent of the gap in expectations
- the emphasis on probity means these reserve prices are to be set in advance of each auction, so the AOFM cannot be accused of favouritism to any bidder.
- with respect to reserve prices the AOFM said reserve prices were set below mid – market and then, once set, the reserve was not changed in light of the bids received.
Mr Nicholls said that, subject to market conditions, the portfolio could be expected to be divested by the middle of 2016 but wanted to stress the portfolio had to be completely liquidated by a certain date.
The third RMBS auction will be held on 18 August and the fourth auction will be held on 15 September.