Macquarie currently has a $15 billion book, of which $5 billion is in Canadian and US mortgages in run-off, which Credit Suisse analysts’ believe will continue to be a multi-year headwind.
“They do have some good flows, you can see that through the AFG data, and particularly with the Yellow Brick Road distribution alliance where they have good penetration,” Credit Suisse banking analyst James Ellis said. “But it is quite small in the context of Macquarie.
“People love to talk about Macquarie’s supposed structural shift in earnings over time, when all of the data when you look at product lines is remarkably similar over 10 to 15 years,” Mr Ellis said.
“The only thing that’s different now in the composition of earnings is geographically,” he said, highlighting that the US has exceeded Australia to become Macquarie’s biggest operating income market globally.
The bank rejoined the residential lending market in 2011 and has emerged as the most successful non-major lender of broker-originated mortgages in the last year, according to AFG.
The AFG Competition Index found Macquarie was strongest in the refinancing and investor sectors in March, where it accounted for 9.7 per cent and 7.3 per cent of all loans, respectively.
Speaking to Mortgage Business, AFG general manager of sales and operations Mark Hewitt sad Macquarie is investing heavily on all sides of its broker-centric mortgage business.
“They have all the parts of their proposition - their marketing and product team, their credit team, their sales team and their leadership - all lined up to a common objective, so they have been very aggressive but they are also executing very well,” Mr Hewitt said.
“They are highly dependent on the broker channel and are investing very heavily on all sides,” he said, adding that the investment bank is “a very good case study” of a business that has changed its focus.
“It’s no secret the investment side of the business can be lumpy, so they are probably looking for some consistency of return that a successfully performing mortgage book can provide,” Mr Hewitt said.
“That’s their strategy and they are doing it very well.”
But according to Credit Suisse analyst James Ellis, Macquarie’s focus will not swing towards residential mortgages.
“Yes, mortgages are an area they are regrowing,” Mr Ellis said.
“They put it on hold in Australia and shut down all the overseas markets, but that run-off is still underway,” he said. “But I don’t think the proportionality is going to shift.
“One, because of its size; and two, because they are growing all of their businesses.
“If they find they hit a wall they are quite pragmatic to divest businesses.
“The other thing is their mortgages are obviously quite a high ROE market in Australia and they quite keenly want to improve their ROE as well.
“That’s one small way; it won’t move the dial on the group ROE, but every little bit helps.”
JP Morgan recently predicted Macquarie’s loan book could double to $30 billion in two years.