Macquarie Group Ltd (ASX: MQG) shares have done well over the past few years, it’s up 40% in three years.
One of the main ways that Macquarie has achieved growth in the last few years has been with mortgages through its banking division.
This has led to Macquarie growing its market share, while challenging other ASX bank shares such as Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Bank of Queensland Ltd (ASX: BOQ).
But, mortgage growth may be slowing, according to reporting by the Australian Financial Review.
Intense competition
The boss of Macquarie Bank, Greg Ward, said that the bank has slowed its growth efforts in the residential mortgage market because he thought that “aggressive cash offers and refinancing terms had pushed rivals to write loans at large losses”.
During April and May, Macquarie’s mortgage book grew, at best, at the same speed as the large ASX bank shares.
Analysis by Macquarie suggested some loans were making just $3,000 of yearly profit on a $500,000 loan.
The AFR quoted Ward, who said:
There has been intense competition in the last six months or so.
We have seen a big influx of what are known in the industry as cashback offers, and these are inducements for customers to refinance.
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.
With interest rates now a lot higher, and Macquarie’s loan book growing at a slower speed, I certainly don’t think the banking division is going to be seeing earnings growth of 20% in FY24. Higher loan arrears are likely to be a headwind for the banking industry.
Macquarie’s investment banking segment may see lower activity in the short-term, with fewer initial public offerings (IPOs).
I’m not sure how the valuations within the asset management division are going to perform, and I’m also not sure what the commodities and global markets (CGM) earnings are going to do.
Final thoughts on Macquarie shares
Despite the somewhat slower growth outlook, I do believe this business is one of the best financial businesses on the ASX.
I appreciate the diversification of the earnings of the business. Its global operations allow it to invest where it sees opportunity around the world.
I’m expecting Macquarie’s earnings to grow in FY25 and the longer-term, but I’d use times of market uncertainty to invest in this business.
