Macquarie eyes a slice of Australian banks' home mortgage pie

Sun Oct 27, 2013 5:22pm EDT
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By Jackie Range and Cecile Lefort

SYDNEY (Reuters) - Australia's largest investment bank Macquarie Group Ltd (MQG.AX: Quote) is pushing rapidly into home mortgages, threatening to disrupt a highly profitable segment of the banking industry long dominated by the country's top four lenders.

Australia and New Zealand Banking Group Ltd (ANZ) (ANZ.AX: Quote), Commonwealth Bank of Australia (CBA.AX: Quote), National Australia Bank Ltd (NAB) (NAB.AX: Quote) and Westpac Banking Corp (WBC.AX: Quote) are on track to report a combined record profit for the fifth consecutive year. Part of the profit stems from their leading positions in the country's $1.25 trillion mortgage market.

Together, the four write as much as 90 percent of the nation's home loans. They typically make a profit of almost A$75,000 ($71,900) over the lifetime of an average sized 25-year home loan, excluding fees charged, according to estimates by The Australia Institute, a Canberra-based think tank.

The prospect of such lucrative gains appears to have enticed Macquarie to expand rapidly into residential mortgages in its own backyard this year. Such a move, analysts say, has the potential to shake up the industry, offering borrowers a competitive alternative to the Big Four.

"Macquarie is probably the standout and the more aggressive mortgage lender at the moment," said Paul Dowling, principal analyst at East & Partners. The research firm says the investment bank is deploying "considerable cash balances".

A Macquarie spokeswoman declined to comment on the bank's moves in the mortgage sector.

Macquarie's share in mortgages for investment purposes jumped 25 percent in the three months to July alone, although that still only accounts for 1.1 percent of the overall investor mortgage market, UBS analysts have calculated.

Its push comes as Macquarie diversifies away from investment banking into less riskier areas, and is seen as smart use of capital when return on equity from the mortgage market is high. The investment bank also has more liquidity, giving it a strong base to fund home loans.   Continued...

A security worker stands next to the Macquarie Group logo in central Sydney February 9, 2010. REUTERS/Daniel Munoz