Bendigo Bank Buys Macloans

REGIONAL lender Bendigo and Adelaide Bank has emerged as a key player in the $27 billion margin-lending market after snapping up Macquarie Group's $1.5 billion book.

Bendigo has defended the timing of the $52 million deal, which comes as the sharemarket hovers around four-year lows and investor appetite for share leverage is waning. Extreme volatility over the past year has highlighted the risky nature of lending against shares after thousands of investors were caught out by margin calls.

Bendigo's head of advisory banking, Jamie McPhee, said the portfolio sat well with existing margin-lending operations, and the medium-term outlook for the business remained sound.

"If equity markets stabilise and then improve, we think the leverage will return," he said.

Bendigo will pay for the margin-lending book by issuing about $52million of convertible preference shares to Macquarie.

Mr McPhee said the deal would be earnings positive for Bendigo from the first year and the price tag was at a discount to other margin-lending acquisitions. In 2005, Adelaide Bank paid about $60 million for the Goldman Sachs JBWere Equity Finance business, which had a loans book of $800 million.

While margin-lending profits can be large, the risks can be high. This has been particularly evident over the past year, with the extreme swings in the market. Investors have been forced to top up their accounts after shares held in Babcock & Brown, Macquarie Bank and even some of the major banks slumped.

But Mr McPhee said the Macquarie book was relatively low-risk and had experienced minimal losses even in the past few months.

The book, which has 13,000 customers and an average account size of about $125,000 was "very similar" to Bendigo's existing book in terms of credit quality and operation.

The latest figures show about $27.5 billion is tied up in margin loans across the industry, but this is down from a peak of $37.7billion due to a reduced investor appetite for leverage.

In the September quarter, more than 870 people a day, out of 202,000 accounts, received margin calls - the highest number in just over five years, according to Reserve Bank data.

Margin calls in the three months to December are expected to run even higher following further wild swings in the market.