What are these dodgy loans?
RBA report here dated September 2005 and special report on the subject today from
Canada....... Did our Our Banks introduced this product........syndicated lending to
Canada? Australia and Canada have been doing the same thing re RMBS Bonds
SYNDICATED LENDING1
Introduction
https://www.rba.gov.au/publications/bulletin/2005/sep/pdf/bu-0905-1.pdf
The borrowing requirements of businesses are sometimes beyond the funding and credit risk capacity of single lenders. As a result, some loans are arranged as syndicates with the funds jointly provided by two or more lenders. Though there is a single loan agreement, each participant to a syndicated loan maintains a separate claim on, and bears the credit risk for, the portion of the loan that it has provided. These loans therefore enable lenders to achieve greater diversification in their loan portfolios and maintain client relationships that can be beneficial in other ways.......
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In terms of the main participants, the four major banks play a dominant role in the syndicated loan market in Australia. In nearly all of the deals completed in 2004/05, at least one of the major banks was involved in arranging the loans, and together they committed around half of the funding for these deals.3 However, foreign banks, particularly Asian, are said to have been increasingly active in the Australian market in recent years, with syndicated loans providing a convenient means for them to gain exposure to Australian credits without the need for a large domestic presence. According to BIS data, foreign banks, including their domestic subsidiaries, participated in deals that together accounted for around three-quarters of the value of total signings in 2004, though it is difficult to measure the exact size of their contributions. Their increased presence reflects a number of factors, including Australia’s perceived political, legal and economic stability. It has also been suggested that returns have generally been higher in Australia than in other markets.
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Conclusions
Syndicated loans have become an increasingly important source of finance for Australian non-financial businesses over the past few years. While the pick-up in lending activity is indicative of the strength of the Australian economy, and of the corporate sector in particular, it is as much a sign of banks’ strong supply of funds, as evidenced by the reduction in loan spreads. This downward re-pricing of loans has raised some concerns that banks may not be taking full account of the risks inherent in these loans. There have been suggestions, for example, that some banks may be using syndicated loans as loss-leaders to gain investment banking business. The decrease in loan spreads is consistent with the aggressive pricing of risk that has been observed in other markets, such as corporate bonds, both within Australia and globally.
Special Report: Canada regulator ignored warnings on risky mortgage investments
1 December 2017
23 Min Read
TORONTO (Reuters) - In June 2014, regulators were investigating syndicated mortgages linked to Fortress Real Developments, a major force in Canada’s multibillion-dollar market for the risky investments.
Compliance officers at the Financial Services Commission of Ontario (FSCO) had evidence that syndicated mortgages were being marketed and sold in ways that broke the law, putting the savings of thousands of Canadian mom-and-pop investors in danger. (Graphic: Hot property - tmsnrt.rs/2AGYA8n)
Brokers affiliated with Fortress, the compliance officers had found, were telling clients they could put their investments in retirement savings accounts administered by a trust company not licensed to do business in Ontario, according to three people with direct knowledge of the matter and internal FSCO documents reviewed by Reuters. The activity, the team determined, was a breach of provincial law - by brokers for recommending Olympia Trust Co, and by Olympia for operating without an Ontario license.
The compliance officers sent their findings to FSCO investigators and later recommended that Olympia be ordered to stop operating in Canada’s most populous province, according to the sources and documents.
FSCO’s investigators did nothing. Their boss, Executive Director for Licensing and Market Conduct Anatol Monid, decided in May 2015 that there was not enough evidence to proceed, the documents show.
That decision was part of a larger, more troubling pattern: From 2011 to 2015, Reuters has found, senior FSCO investigators rejected or ignored compliance officers’ multiple recommendations that the agency investigate or take action to rein in the marketing and sales of Fortress syndicated mortgages.
Since then, growing investor outcry about the products has focused public and government attention on FSCO’s lax regulation of the market. In the past decade, more than 20,000 retail investors have put as much as C$1.5 billion (US$1.17 billion) into syndicated mortgages, mostly in Ontario, according to regulatory sources. Roughly 90 percent of those investments, the sources said, have ended in a loss or are at risk of doing so, and Fortress projects make up more than half of the investments.
The documents seen by Reuters, supported by interviews with 10 sources familiar with FSCO’s activities, show that the agency didn’t merely miss the problem; its senior investigators ignored or downplayed clear warnings from within their own ranks that retail investors were being sucked into a market to which they were ill-suited.
As yield-hungry savers were pouring their money into the investments to profit from Ontario’s red-hot real estate market, FSCO compliance staff opened at least 17 Fortress-related investigations, according to the sources and internal FSCO documents.
In at least 10 of those cases, FSCO staff found possible breaches of Ontario law that they felt warranted action. The breaches included misleading marketing, selling products unsuited to clients’ risk tolerance, and failure to disclose the risks and costs of the investments, among other infractions. And in all but one case, FSCO’s investigators either overruled or ignored the recommendations.
Why the FSCO investigation team repeatedly declined to pursue recommended investigations isn’t clear. Current and former FSCO staff said the investigators, most of them former police officers, lacked the required skills and knowledge and were discouraged by senior regulators from pursuing complex cases. .......read more https://www.reuters.com/article/us-canada-mortgages-regulator-specialrep/special-report-canada-regulator-ignored-warnings-on-risky-mortgage-investments-idUSKBN1DU1YP