Meeting the needs of a sophisticated market

There has been little product innovation in the industry over the past few years away from the traditional margin loan, although some new developments are in the pipeline.

Except for some lenders allowing investors to imbed derivatives in their portfolios, margin lending products haven’t fundamentally changed over the past few years, according to Bassem Jammal, managing director of boutique lender Lift Capital.

“Right now there’s just a vanilla product offering with a few bells and whistles here and there.”

To date there are only about four lenders, including Lift, that provide the options feature, Jammal said, adding that he could “see no conceivable reason” why any of the major lenders should not be able to offer it.

He said the only other innovation by lenders has been to “increase their list of approved securities, but that’s not hard, and to have been very competitive on price, but again that’s not that hard either”.

The more successful lenders in future will be those who are able to adapt to the increasing sophistication of investors and advisers in this market, according to Jammal.

“We believe investors increasingly want choice, and in the past that choice has not being there. Choice is about flexibility of lending ratios, no minimum loan hurdles, portfolio protection and income enhancement strategies, as well as the ability to assess non-conforming loans and collateral. There is also a market need for simple and transparent products and features.”

Lift has offered lending lines on a “number of listed and unlisted issuances during the last financial year and continues to assess alternative investment opportunities as they arise”, he said.

St George margin loans head Andrew Black, who acknowledged the industry was weak on product innovation, said the lender is looking at providing product features such as “short selling call options” to clients later this year.

“We are also currently working on do-it-yourself options, which is allowing people to buy and sell put and call options that are both cash and security covered.”

Black said St George was also looking at global equities as one of the product features it “may very well add” in the future, although he emphasises he is not seeing a tremendous amount of demand for them.

ANZ has also just “introduced products so that you can borrow against shares where you have bought a put option,” according to ANZ margin loans head John Daley.

“We will lend up to 95 per cent of the put option. So if you buy ANZ at 26.50 or whatever we are today, and buy a put option for $26.50 then we will lend you up to 95 per cent of $26.50. If the value of ANZ falls you can then nevertheless sell the put options for $26.50,” he says.

Daley says the ANZ was seeing very significant demand for higher leverage over a larger number of stocks, and was expecting to make a product announcement in that regard “very shortly”.