The AFR has an interesting story today about Macquarie Bank seeking to grab its share of the Australian mortgage magic pudding:
Macquarie Bank has posted an astonishing 55 per cent growth in mortgages to $6.2 billion over the past six months as it seeks to take advantage of big profit margins on home loans and ramp up competition against the big four banks.
It is believed Macquarie Group deputy chief executive Greg Ward is determined that the traditional investment bank should become a more serious player in retail banking.
The mortgage growth has come from selling home loans through Mark Bouris’s mortgage broker Yellow Brick Road and its own distribution network.
Although Macquarie has continually downplayed the significance of its greater focus on home loans, some sources claim it has aspirations to become the “fifth pillar” in home lending against the big four banks, which control almost 90 per cent of the mortgage market.
This is not quite as astonishing as it’s made out to be. $3.2 billion growth in the mortgage book over six months is roughly 9% of total system growth. Not bad, sure. And showing some intent. But hardly astonishing.
The more interesting question is how Mac Bank intends to fund the expansion:
One industry source who has been analysing the opportunity for new players to move into the mortgage market said the major banks were vulnerable to a new aggressor in the mortgage space. This is because the big banks’ mortgages are funded by more expensive credit sourced several years ago when funding costs were much higher.
In contrast, a new competitor can grow quickly by offering discounted rates on mortgages which can be funded by cheap credit now on offer in the wholesale and residential mortgage backed securities (RMBS) markets.
Ah, well, maybe they can and maybe they can’t. That will depend rather upon APRA and it’s demand that bank’s fund new mortgages via deposits. Mac bank has $30 billion or so already, according to the article. Then there is the ratings agencies to consider.
Moreover, one wonders why neither the “industry source” nor the journalist mention that the same business model – “offering discounted rates on mortgages which can be funded by cheap credit now on offer in the wholesale and residential mortgage backed securities (RMBS) markets” – culminated in the collapse of the non-bank sector during the GFC as well as threatening mid-tier banks which caused significantly greater concentration not competition.