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31st March 2023

Week in Review

Australian inflation cooled in February by more than analysis forecast. The data indicates local inflation peaked at the end of 2022 and could give the RBA reason to pause rate hikes next week..

The FOMC raised US rates by 25bps last week, showing both resolve to fight inflation and confidence in the US banking system amid recent turmoil.

Credit Update: MME Horizon - February 2023

MoneyMe (ASX: MME) had its stock placed into trading halt on 21st of March 2023.  According to Bloomberg, MoneyMe is looking to close an underwritten deal by the end of this week for $30mm. Funds would be used to repay the A$25mm short-term facility from Pacific Equity Partners (PEP) which was written at a high interest cost.

The business remains profitable, but requires some optimisation of its funding base which might include restructuring of their debt facilities to achieve a better cost of funds. At this time, a new funding arrangement for MME would be credit positive upon execution.

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Thought Piece: UBS to buy Credit Suisse in Momentous Deal

One of the recent events that has possibly changed the banking landscape, is UBS acquiring Credit Suisse in a momentous deal. The transaction, brokered by the Swiss National Bank (SNB) and Swiss Financial Market Supervisory Authority (FINMA), which will also have extraordinary support from the Swiss Government, triggering a complete write down of the nominal value of all Additional Tier 1 of CS (c.CHF16bn) to zero.

Can a similar case be drawn for Australian banks as was the case with CS? Matthew Macreadie answers along with a detailed overview of the acquisition.

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Thought Piece: Implications for UBS/CS on Kangaroo Perps

Government backing in the UBS and Credit Suisse (CS) merger has offered CS protection from certain potential future losses. However, CS’s Additional Tier 1 (AT1s) were written off even though shareholders will retain some value. The deal was put together at immense speed with the aim of restoring confidence in CS and more widely the European banking sector. However, this situation might lead CS to greater scrutiny and differentiation between subordinated debt (i.e., AT1 and Tier 2 (T2)) structures from different jurisdictions.

The Australian bank AT1 and T2 structures have equity conversion language included along with having partial/full write-down, implying the ability for some recovery. Matthew Macreadie maps out the good and the bad news that comes with this merger, and its implication on Kangaroo Perps.

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Credit Opinion: Aroundtown

With the failure of Credit Suisse and concerns over the US regional banking sector, corporates with “hard” property assets that offer defensive characteristics are going to be in demand. The Aroundtown name is not well known locally but is one of Europe’s leading property Real Estate Investment Trusts (REIT).

We see outperformance in Aroundtown’s senior unsecured bonds (we expect the bonds to tighten by at least 100bps versus the BBB curve), especially as the bond price migrates to par with only two years to run until maturity.

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Thought Piece: Aged Care Today - Investment Grade Bonds

IAM has a long history of working with aged-care providers, including not-for-profits. In his latest article for Aged Care Today’s Autumn release, Matthew Macreadie shares his insights on how changes in MIPR can ‘materially impact the level of Daily Accomodation Payments(DAP).

The article captures the need for appropriate asset allocation and its subsequent advantages to make a difference in the bottom line for these investors. Click the link below to view the article, and turn to page 91..

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Chart of the Week: Size of Swiss Banking System / Swiss Banking System Total Assets % of GDP

Total assets in the Swiss banking system stood at CHF3.5trn at the end of 2022, equivalent to 448% of GDP. UBS accounted for 132% of GDP at YE 2022, while the much-reduced balance sheet of Credit Suisse accounted for 69%. Therefore, the combined balance sheet of UBS and Credit Suisse amounted to approximately CHF 1.55trn, or around 200% of GDP. The recent merger of UBS and CS therefore results in a greater concentration of contingency risks for Switzerland which the Swiss Authorities will have to manage.

Source: Swiss National Bank, State Secretariat for Economic Affairs (Switzerland)

Bonds: IAM Bond Rate Sheet