From Chris Joye today:
If we look at Macquarie’s “internal ratings based” home loan book, which was $29.3 billion in December 2015, the total impaired and 90 days overdue non-performing loan rate was 0.84 per cent.
The comparable statistic from CBA in December was 0.51 per cent (Macquarie is better than CBA on 90 days arrears but worse on impairments). On this basis, there are no risk problems in Macquarie’s core residential lending business.
Yet Macquarie separately reports it has $7.3 billion of “standardised” home loans, $447 million of which were impaired or three months overdue in December. That translates into a stunningly high 6.1 per cent non-performing loan rate.
Following our inquiries, Macquarie confirmed this was explained by “distressed” loans Macquarie has bought via its high-yield investment unit, called Corporate & Asset Finance.
The non-performing loan rate on Macquarie’s distressed book is at least 12 times major bank levels and equivalent to the default rates seen across the US mortgage market during the sub-prime crisis.
…more than half these assets have been bought in secondary markets (ie, traded) and an undisclosed sum sold again in secondary activity. Macquarie does not currently mark-to-market these investments like normal high-yield investors; rather, it treats them like ordinary bank loans that are “held-to-maturity” even though it is not always doing this.
…A second question is the idea of a regulated Australian bank exploiting this extreme carry trade of borrowing money at ultra-cheap rates through government guaranteed deposits (and bonds) and then lending to very high-risk foreign credits that are either in distress or willing to pay non-bank loan rates.
Closed door APRA supervision is not enough. Macquarie needs to be given a guarantee of no guarantee or this kind of activity needs to explicitly marked-to-market so that we tax-payers (and the market) can see them appropriately provisioned against with more capital. Macquarie is trading these securities so they need to be in the trading book. Simple as that.
