Macquarie takes small premium for investment lending

Bendigo and Adelaide Bank agreed to pay a small premium of $52 million, and paid in short dated, converting preference shares, to buy the investment lending business of Macquarie Bank.

The regional bank picks up a margin lending portfolio of $1.5 billion and 13,000 customers through the purchase, the chief strategic rationale of which is to buy access to financial planners for Bendigo's margin loan products.

Over five years Adelaide Bank and now Bendigo have been the buyer of niche margin lending businesses, including Leveraged Equities and the corresponding business of Goldman Sachs JB Were.

Macquarie Private Wealth will continue to market Bendigo-funded margin loans under a white-labelling arrangement.

Like Bendigo's margin lending book the Macquarie portfolio has experienced trivial write-offs even during the heavy equities sell off in 2008.

Jamie McPhee, chief executive of partner-advised banking at Bendigo, said the bank did not accept suggestions of the death of margin lending.

"We still do think this is an excellent product for customers who want to grow and strengthen their balance sheet in a prudent way."

Bendigo will select the Macquarie staff it will hire as part of the transaction, leaving it to Macquarie to redeploy or most likely fire the bulk of relevant staff.

McPhee said margin lending earned higher margins for the bank than other lending products and said that on a pre-provision basis the business earned a return on equity of 15 per cent, which compares with an ROE of about 12 per cent for the bank in the second half of its 2008 financial year.