Bendigo and Adelaide Bank to acquire ANZ’s margin lending business for $715m

ANZ sold its financial advice and pension assets to Insignia Financial (then IOOF) in 2018 and 2020, and its equity trading platform to CMC Markets last year.

Although ANZ saw investment lending as a peripheral, Bendigo had come to the assessment that it was a core business, said Lily Elliott, head of the bank’s margin lending subsidiary. , Leveraged Equities.

“We know that some banks divest, but we’ve always been a specialist in that market and we’ve operated very efficiently,” Ms Elliott said. The Australian Financial Review. “For the bank, it makes sense.”

“High return on equity”

Despite the equity market downturn, Leveraged Equities issued $300 million in margin loans in the year ended June 30, Elliott said. The bank does not disclose the contribution of the Leveraged Equity business to group profits in the annual results.

“We offer a high return on equity, and that’s an attractive proposition for the bank,” Ms. Elliott said.

The acquisition of ANZ would diversify Leveraged Equities’ client base from its traditional base of financial advisers to more direct retail investors, she said.

Already, Bendigo had detected an increase in retail investors since the start of the COVID-19 pandemic, particularly younger and female investors. The latter made up 34% of customers and their numbers were growing rapidly, Ms Elliott said.

“Enable investment choice”

The growth comes as millions of investors around the world entered financial markets for the first time since the pandemic began, in what has become known as the “Robinhood phenomenon”, named after the controversial US trading app.

But it also comes amid a strong sell-off in volatile stock markets, with the Nasdaq Composite Index down 28.2% this year and the S&P/ASX 200 down 12.4% over the same period.

Asked if now was the right time for clients to take out margin loans, Ms Elliott said: ‘It’s up to individual clients, we allow investment choice.’

Most Leveraged Equities clients were long-term investors “buying the dip” in markets rather than short-term traders, she said.

Rising interest rates presented both an “opportunity and a challenge,” she said. While rising rates allow banks to potentially earn more revenue from borrowers, the environment can also dampen enthusiasm for financial market transactions. “You look at both scenarios,” she said.

About 28% of Leveraged Equities clients have prepaid their interest and locked in a rate for 12 months, anticipating higher rates and tax benefits.

Sector review

The margin lending industry has come under intense scrutiny in the wake of the global financial crisis, with record high leverage trading and widespread margin calls among the weak spots in the downturn.

In Australia, the reputation of margin lending has been hit by the Storm Financial saga, in which a financial planning firm in Far North Queensland placed at least 3,000 clients in its uniquely leveraged ‘Stormified’ model. which exploded, leaving behind losses estimated at $1.5 billion.

Margin lenders Commonwealth Bank, Macquarie and Bank of Queensland have compensated Storm customers for $268 million, $82.5 million and $17 million respectively. In March 2020, Storm directors Emmanuel and Julie Cassimatis were found guilty of negligence.

Ms Elliott said a lot of regulatory work had been done since then, including the advent of the responsible lending regime. The average component of a leveraged trade has dropped to just over 30%, she said.

“So much has changed since the GFC.”

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