* Home mortgage market key profit centre for Australia's Big
* Macquarie's push into home mortgages seen as smart use of
* Debate rages over whether housing market in boom or bubble
By Jackie Range and Cecile Lefort
SYDNEY, Oct 28 Australia's largest investment
bank Macquarie Group Ltd 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
Australia and New Zealand Banking Group Ltd (ANZ),
Commonwealth Bank of Australia, National Australia Bank
Ltd (NAB) and Westpac Banking Corp 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.
Other firms too are delving deeper into Australia's home
loans market, including mortgage group Yellow Brick Road
Holdings Ltd, 14.9 percent-owned by Macquarie, and the
Australian arms of ING Groep NV and Citigroup Inc
To raise more funds to lend to home buyers, those smaller
lenders are now securitising mortgages in a market which came to
a halt just a few years ago after the global financial crisis
spooked investors and lifted the cost of funding to exorbitant
While funding costs are still significantly more expensive
than in 2006 before the crisis, they have sufficiently fallen
from the peak to allow small lenders to take a crack at the Big
Four's stranglehold of the home loans market.
The Big Four haven't always had such dominance. Before the
crisis, smaller lenders had 30 percent of the market. They
included Australian regional banks such as St George Bank,
Suncorp Metway and Adelaide Bendigo Bank, and non-bank lenders
like Resimac and FirstMac.
Australian arms of international lending institutions were
also part of the group, with Citi and ING able to gain a solid
presence even without the brand recognition in the country that
FROTH TO BE FEARED?
Talk that Australia's housing market is in a bubble has
intensified with a spike in an index for home prices in the
country's major cities to an unprecedented high as well as close
to record auction clearances in parts of Sydney.
Financial authorities have sought to quash such talk, with
the central bank calling it "unrealistically alarmist". But the
fears themselves are real and the banks' earnings over the next
two weeks will be scrutinised for any hints as to the health of
the mortgage market.
ANZ, Commonwealth Bank, NAB and Westpac are on track to
report an 8.5 percent rise in combined full-year cash earnings
to A$27.1 billion.
Any shifts in home loan market share for individual banks
are also set to go under the microscope, with analysts citing
commentary on mortgage demand and pricing from the banks as
drivers for share prices.
Australian mortgages represent 61 percent of gross loans and
advances for Westpac, 60 percent for Commonwealth Bank, 45
percent for NAB and 42 percent for ANZ, according to figures
Westpac may be of particular interest after it experienced
slower growth in its domestic mortgage book of 3.8 percent in
the 12 months to the end of August, compared to the banking
industry average of 5.1 percent.
It reports on Nov. 4 and is expected to post annual cash
earnings, which exclude one-off and non-cash items, of A$7.1
billion, up 7.6 percent on the year before, according to an
average of estimates from three analysts polled by Reuters.
ANZ reports on Oct. 29 and is projected to book a 9.8
percent rise in full-year cash earnings of A$6.4 billion. NAB is
expected to post a 6.8 percent rise in annual cash earnings to
A$5.8 billion on Oct. 31.
Commonwealth Bank, the nation's biggest lender by market
value, is expected to report first-quarter cash profit on Nov. 6
of around A$2.15 billion, up from A$1.85 billion from a year
earlier, Morningstar analyst David Ellis has projected.
It reported full-year cash profit of A$7.82 billion in
Two analysts surveyed by Reuters expect Macquarie, which
reports on Nov. 1, to log first-half net profit of A$475
million, up 32 percent from a year earlier.