The world’s biggest search engine has been ogling some pretty attractive low-rate securities.
Google dived into auto asset-backed securities with $40 billion, most recently with the purchase of triple-A-rated debt from Honda Motor Co. and Hyundai Corp., according to the Wall Street Journal.
Through Aug. 2, $60.68 billion of bonds tied to car loans had been sold in the U.S., according to Thomson Reuters, up 50% from a year earlier and the highest figure at this point of the year since 2005. Late last month, a unit of Nissan Motor Co. priced $1.4 billion of bonds — increased from a planned $1 billion — at an average rate of 0.48%, a record low, in a deal led by Citigroup.
So far, asset-backed securities represent less than 1% of Google’s cash.
John Bella, managing director in ABS at Fitch Ratings, told WSJ that net losses on auto asset-backed securities have fallen steadily since the crisis four years ago, and the deals are now backed by prime borrowers.
Only about 1% of the loans originated in 2011 and packaged into auto asset-backed securities are expected by Fitch to default, compared with 2.6% of the loans in auto deals originated in 2007, WSJ reported.
At least in part, this is about Google not being able to create new products beyond its core search offering (which is a mind-boggling cash cow, parenthetically). For example, Google Wallet, the company’s payments play launched more than a year ago, has largely stuttered. That Google has planted its cash in auto ABS points to an evolution that I would expect will make Google more of a money management firm — $40 billion is a lot of dough, after all — than a technology company. Not that that is a bad thing, especially for auto ABS issuers.