Macquarie profits forecast to rise in 2014 financial year as home loans business grows 22.4% in three months
Profits at Macquarie group are set to rise in 2014 as its financial services arm, Macquarie Bank, continues to expand its mortgage footprint via mortgage lending, wholesale funding and mortgage broker distribution deals.
Macquarie chief executive Nicholas Moore signalled a rise in profits in May with the group's AGM, set to take place on Thursday - last year Macquarie reported a 17% rise in net profit to $851 million for the year ended March 31.
At its 2013 full-year result announcement in early May, Moore said that "profit for the 2014 financial year was expected to be an improvement on 2013 provided market conditions were not worse than those experienced during 2012 - 13."
More recently analysts at Deutsche Bank say the investment bank is significantly undervalued by the market and are forecasting the Macquarie share price to rise as much as 30% over the next year and a half.
The share price has risen from around $36 in mid-April to currently at $46.33 with Macquarie's mortgage expansion a key component of its growth strategy.
The latest APRA monthly banking figures show that Macquarie Bank has grown its owner occupier home loan book by 22.4% in the space of three months from $3.96 billion in February to $4.85 billion in May and more than doubled it in the past 12 months - in May 2012, the loan book was worth $2.2 billion.
This ranks Macquarie as the 11th biggest mortgage lender to owner-occupiers, though it has some way yet to go if it is to become the so-called 'fifth-pillar' in banking behind the four major banks - a position long occupied by ING Bank, which has a $27.59 billion owner-occupier mortgage book.
Macquarie's investor home loan book is also surging, having risen 21% over the past three months from $1.77 billion to $2.14 billion.
Alongside its growing home loan book, Macquarie is branching into new areas of mortgage finance funding while cementing relationships with niche home loan players.
Last month BRW Magazine reported that Macquarie Bank would provide warehouse funding to assist specialist lender Bluestone's re-emergence after a GFC-induced five-year break from mortgage origination.
Macquarie Bank acquired a 17.5% stake in Bluestone in November 2010.
Under the stewardship of chairman Alistair Jeffrey, Bluestone was one of the biggest providers of non-conforming loans (mortgages to borrowers with credit-impaired borrowing histories), but was forced to stop originating new home loans in the wake of the sub-prime mortgage crisis.
Bluestone will now offers its mortgages through AFG’s network of 1,800 mortgage brokers, of which Macquarie is a shareholder.
The provision of funding for Bluestone followed soon after Macquarie Group and Macquarie Bank raised their holding in Mark Bouris’s wealth management and home loans franchise business Yellow Brick Road from 8.3% to 10.5%, this after Macquarie Bank tied up a wholesale funding and mortgage distribution arrangement with the fast expanding franchise business in November last year.
In April, Macquarie Group and Macquarie Bank acquired a 19.8% stake in listed non-bank lender Homeloans Limited - a further potential distribution arm and funding tie-up for its home loans.
Prior to the onset of the GFC, Macquarie provided securitised mortgages to Bluestone and Aussie Home Loans, before pulling back due to the virtual freezing of the residential mortgage backed-securities (RMBS) market.
In early 2010, Macquarie Bank signalled its return to the mortgage game with the creation of Vow Financial, a mortgage aggregation business comprising a number of mortgage broker groups, through which it can distribute its mortgage offerings.
Macquarie has a minority (less than 20%) stake in Vow, which represents around 600 brokers across Australia and has loans under management of about $16.5 billion.
In January this year, Business Spectator columnist Robert Gottliebsen wrote of mortgage and deposit war erupting on the back of Yellow Brick Road accessing cheap funding from Macquarie Bank.
Macquarie has made no secret of its plans to grow its mortgage lending arm.
As part of its annual operational briefing in February, Macquarie Group CEO Nicholas Moore noted the group’s expanding mortgage portfolio and that “originations are expected to continue to grow significantly in the 2013 calendar year”.
Mortgage Choice chief executive Michael Russell told BRW magazine that Macquarie Bank clearly has an “insatiable desire for a much bigger market share in home loans”.
The APRA figures also show that Macquarie Bank has a $4.65 billion secured housing loan book and total resident assets of $59 billion.