How one lender is navigating COVID-19

by AB13 Apr 2020

A $10bn lender, La Trobe Financial is the longest standing of any current operating non-bank in Australia. With $636m in annual revenue and $223m in net assets, its planning and resilience around crises such as COVID-19 has been decades in the making.

Since 1952, La Trobe Financial has served over 150,000 customers, covering some $23bn of institutional investment mandates from banks and global investment houses. It also survived the 1970s credit squeeze, the 1990 bank collapses in Victoria, the various stock market collapses of 1989 and 2002, the 2008 GFC, and now faces the economic fallout from the 2020 COVID-19 pandemic.

With its current leadership group largely unchanged for the past two decades, and many of its managers having operated the business through those downturns, the two principal leaders responding to this current downturn are its chief lending officer, Cory Bannister – a 20-year veteran of the mortgage finance industry, and Chris Andrews, the group’s chief investment officer and deputy CEO – a 15-year veteran of investment markets operating the group’s $5bn retail investment credit fund.

Their simple message to loan brokers, independent financial advisers, retail investors and the market broadly is that La Trobe Financial is financially sound, has a deep balance sheet prepared for such times, and remains open for business and ready to serve those customers who are underserved and overlooked by mainstream financial entities.

Speaking on the current crisis, Andrews explains, “The business is in great shape, with a reservoir of trust from investors, both retail and institutional, built up over seven decades based on performance across all market conditions.”

Bannister adds, “It’s a unique combination of “strong culture and our track record of disciplined investment and loan underwriting that ensures our future.”

COVID-19 disruption

Australia entered 2020 with a focus on getting bushfire victims back on track. The nation was dealing with one of the largest and most impactful bushfires in our nation’s recorded history. Few were closely following the story of a new flu-like virus causing problems in central China. Then, in early February, just as the bushfires abated, the world awoke to the potential catastrophe that was brewing in the form of COVID-19.

One month down the track and the entire world has entered an unprecedented health emergency that has become the singular driver of markets everywhere. According to La Trobe Financial, the local responses to these events have been remarkable. The response to bushfires saw funds raised, materials donated and labour volunteered at levels we have never seen before. Lenders offered special bushfire assistance to borrowers, and the whole industry pitched in to show solidarity with the affected communities.

But amid the horror, it was a moment to reflect on the special values of communities working together and putting others before themselves.

The response to COVID-19 has been similarly strong on both a local and international level. La Trobe Financial says it has seen overwhelming adherence to the societal and travel restrictions implemented by both state and federal governments.

Both Bannister and Andrews say they believe people do genuinely want to play their part to flatten the curve and stop the spread of this most virulent disease. They say Australians care about protecting the most vulnerable and that our healthcare system has the ability to cope with the likely spike in attending patients.

Indeed, since the start of the year, the state and federal governments have been working together, as well as both sides of politics at a federal level. The government, regulators and the Reserve Bank of Australia have created a coordinated response to the challenges faced, with unprecedented fiscal, monetary and social measures taken to protect individuals, small businesses and our communities.

“COVID-19 is first and foremost a human story, and its worst impacts are at the human level. That is important to acknowledge. Obviously, however, as investors and as investment managers we must also consider the likely impact on markets, portfolios and the broader economy,” says Bannister.

Chris Andrews, chief investment officer, La Trobe FinancialChris Andrews, chief investment officer, La Trobe Financial

And those effects will be profound. Daily, the world witnesses the closure of shops, factories and offices. The nightly news shows lines outside Centrelink that have not been seen since the ‘recession we had to have’ in September 2001, when unemployment peaked at 10.8%.

Andrews also suggests that the dramatic ‘lockdown’ of economies, both here and abroad, is projecting a base case of GDP down 6.5%, unemployment at 12.5% and a peak effect in the second and third quarters of this year.

But there is some good news. Andrews explains that there is systemic strength in the financial sector, with substantially stronger bank balance sheets underpinning the economy through the worst of the COVID-19 crisis.

What’s more, he says that since many of the key impacts are being felt in fundamental service sectors, labour is likely to be quickly redeployed and the rebound may therefore be surprisingly quick.

Andrews explains, “The key variable, of course, is the time taken to develop effective treatments and/or inoculations to the virus. With many promising developments being reported daily around the world, a line of sight on such developments could be achieved sooner than many commentators expect.

“In the meantime, governments and economies have to mitigate the immediate-term impacts. A sudden spike in unemployment will test the capacity for borrowers to maintain their monthly mortgage repayments. Despite around 2.5 years of excess servicing held in offset and similar accounts system-wide, the unequal distribution of such means that specific cohorts of borrowers will face cash flow challenges.”

Undoubtedly, governments also  have a role to play, and the federal government has outlined its initial economic response to COVID-19 through a range of measures designed to aid borrowers and support the immediate cash flow needs of SMEs.

“We are very mindful of the struggles facing everyday Australians through this time. That’s why we have introduced a four-month repayment moratorium upon request to assist home loan customers, together with a raft of offerings to help our valued small business borrowers” Cory Bannister, chief lending officer, La Trobe Financial

Cory Bannister, chief lending officer, La Trobe FinancialCory Bannister, chief lending officer, La Trobe Financial

The SME Guarantee Scheme will guarantee some $40bn of credit for the SME market, says Andrews. And such a provision should enable cash flow concerns to be addressed and obligations to be met through this period.

APRA has also temporarily eased bank capital requirements to support ongoing lending, while the Australian Office of Financial Management has launched a $15bn structured finance offering for non-ADI and smaller ADI lenders in the securitisation market.

The industry, too, stands ready to assist. Lenders have been  quick to offer special hardship arrangements to borrowers to help them negotiate this difficult period.

At La Trobe Financial, for example, further to its assistance program for bushfire-affected borrowers, a special hardship assistance program has been offered for customers affected by the COVID-19 virus and its wider economic impact.

Bannister told Australian Broker, “We are very mindful of the struggles facing everyday Australians through this time. That’s why we have introduced a four-month repayment moratorium upon request to assist home loan customers, together with a raft of offerings to help our valued small business borrowers.”

He explains that La Trobe Financial also has in place a dedicated hardship assist team to ensure compassionate and prompt service is offered to borrowers through this difficult time.

Bannister adds, “We are ready for our borrowers. In the wake of the bushfire crisis we were quick to offer special hardship arrangements for those affected. We see the value in staying true to our philosophy of ‘others before self ’ and demonstrating that we are here to serve our customers across every life event.”

Likewise, he suggests that La Trobe Financial’s investment offerings provide assistance for those impacted, with a waiver of early withdrawal fees for customers suffering material hardship as a result of COVID-19.

To this, Andrews adds, “Placing the needs of our customers first is fundamental to our philosophy. Many of our investors have held  active accounts for 10 or even 20 years. It is absolutely in our DNA to return the same support to our investors that they have demonstrated to us over many, many years.”

Of course, beyond lending, the impact of COVID-19 is also being felt by investors. As is widely publicised, the All Ordinaries Index retreated from a peak of 7,289 in February to a low of 4,564 in March, and daily trading sees stock prices flying around wildly. Globally, this is playing out across all markets, leading investors of all persuasions to seek less volatile investments.

Andrews says, “The La Trobe Australian Credit Fund has been helping investors navigate volatile markets for more than 20 years. All of our portfolio accounts have an incredible track record of consistent monthly income, 100% return of capital and flawless liquidity, which is something we are immensely proud of.”

Finally, both Andrews and Bannister suggest that while the eventual duration and impact of the COVID-19 waits to be seen, what we do know is that Australians stick together. And together we need to do our part in strengthening the economy and building a bridge to the other side of this health and economic crisis.