Macquarie slowed mortgage assault to preserve profits

afr.com:

Macquarie Bank boss Greg Ward says the lender slowed its push into the residential mortgage market because he suspected aggressive cash offers and refinancing terms had pushed rivals to write loans at large losses.

Margins had reduced to far that some banks were earning as little as $3000 in profit annually on a $500,000 loan, Mr Ward told a parliamentary committee hearing on Tuesday, adding Macquarie’s lending growth had “slowed” after it grew its mortgage market share over the last decade.

Data for April and May show Macquarie’s mortgage book advanced at the same pace or slower than other major banks, meaning its market share is at a standstill. Analysis by Citi this week found smaller banks like Bendigo and Adelaide Bank, Suncorp and ING “who have been largely out of the market, have delivered above system growth over the last three months”.

“We think a lot of that business is written at a very low return and, in some cases, below the cost of capital,” Mr Ward said of the recent mortgage wars. Erik Meitzel

“There has been intense competition in the last six months or so,” said Mr Ward, who is also Macquarie Group’s deputy managing director. “We have seen a big influx of what are known in the industry as cashback offers, and these are inducements for customers to refinance.”

He said this was an attractive option for customers, which was offered by all the major banks for a period, but it was unprofitable for lenders.

“We think a lot of that business is written at a very low return and, in some cases, below the cost of capital. We haven’t been offering cash backs, and so in recent times, our borrowing volumes have slowed,” Mr Ward said.

Macquarie’s reluctance to compete in the cashback-driven mortgage land grab explains