The head of an Australian non-bank believes the specialist lending space will see a pick-up in M&A activity over the next 18 months as incumbents struggle to grow organically.
The industry insider told Mortgage Business that any attempts at organic growth would be "pretty risky" in the current climate, where margins are tight and the credit environment is benign.
“I can sense that there will be some M&A activity,” they said. “There are some obvious choices in the market.”
Pepper Group, one of the largest players in the specialist space, listed on the ASX on 31 July. During the first half of the 2015 financial year Pepper on-boarded a series of new servicing contracts in Ireland, Spain and the UK, some of which had originally been awarded late last year.
Pepper Ireland was awarded a contract after 30 June to provide third-party asset servicing on a $5.6 billion loan portfolio recently acquired by CarVal Investors and Goldman Sachs-affiliated entities from Lloyds Banking Group. The portfolio comprises a mix of residential, commercial and unsecured loans.
Meanwhile, Liberty Financial has been expanding into new markets, investing $30 million in online SME lending platform Moula Money.
“We are also making preparations to launch an exciting new business line which is set to disrupt another market,” Liberty Financial national sales manager John Mohnacheff told Mortgage Business.
“With no other specialty lender being able to match our investment grade rating, Liberty’s diversification and financial strength puts us in a unique position to drive industry progress,” Mr Mohnacheff said. “Whether through M&A activity or delivering delightful experiences to our business partners and customers, we take a free-thinking approach to find special ways to build beneficial relationships with a wide variety of stakeholders.”
Digital Finance Analytics principal Martin North noted that specialist lending is a small proportion of the mortgage market. The non-banks are more active in the space as they do not have the same capital or regulatory constraints and do appear to be able to get funding either from private investors or securitisation, he said.
“For it to grow, I think there would need to be consolidation. There are a smaller number of players active now, and they are larger, and they will cherry-pick the most lucrative segments, rather than offer to the whole market.”