Macquarie Bank has confirmed its fragility and lack of financial strength by lifting interest rates on nearly $8 billion worth of low doc home mortgages.
The bank joined non-bank lender Bluestone in pushing up rates to low doc borrowers; a move forced on them by the credit freeze and sharp rise in short term money market interest rates in the past month.
Macquarie lifted rates 0.3%, meaning that rates have risen 0.55%, including the quarter of one per cent rise forced by the Reserve Bank’s move to boost interest rates on 8 August.
Since that meeting yields bank bills, the basic form of day to day financing of the professional money markets, had risen by around half a per cent, before easing yesterday after Reserve Bank widened the types of securities it says it will deal in to help maintain liquidity in the markets.
That will enable it to also widen the number of institutions it can deal with: these will indirectly include the non-bank lenders such as Rams (but not low-doc operators like Bluestone).
Macquarie Bank can deal because it is a trading bank but it will not be able to deal or use its low doc mortgages or securities backed by those. Only high grade local prime mortgages or mortgage backed securities will be accepted by the RBA, but not directly.
So Macquarie, which is said to have the largest low doc lending book among the major banks, will not be able to deal directly with the RBA for those or its higher rated (Triple A) mortgages: that will have to be done indirectly through another bank or aurthorised deposit taking institution.
The fact that Macquarie moved before any of the other major banks also illustrates its exposure to short term money markets, while the likes of St George, ANZ, Westpac, the CBA and NAB have large deposit bases which are low cost and highly stable funding sources.
All banks are being subjected to the same short term interest rate pressure as Macquarie, but those tens of billions of dollars of depositors’ money is allowing them to absorb the cost until they see just how long this extra interest rate cost is going to last.
The ANZ warned last week that it could see a 0.25% rise in lending rates to mortgages and business if the pressure continued, but it hasn’t moved.
Macquarie blinked first, and the rest of the banking industry has taken notice.
Crikey is committed to hosting lively discussions. Help us keep the conversation useful, interesting and welcoming. We aim to publish comments quickly in the interest of promoting robust conversation, but we’re a small team and we deploy filters to protect against legal risk. Occasionally your comment may be held up while we review, but we’re working as fast as we can to keep the conversation rolling.
The Crikey comment section is members-only content. Please subscribe to leave a comment.
The Crikey comment section is members-only content. Please login to leave a comment.