Margin lending meltdown

The ugliest set of numbers in the Commonwealth Bank's December half presentation documents related to its margin lending business. The size of the book has plunged from $8 billion to $5.5 billion in six months, though this is in line with the decline in the stock market.

The bank made 64,245 margin calls in the half; about 4.5 per cent of those resulted in forced sales and losses jumped from 0.06 to 0.27 per cent of the book between June and December.

During the equity market boom years, banks used their wealth management arms to sell the message to brokers and financial planners that margin loan facilities should be a standard feature of any wealth accumulation plan.

Banks may have to adopt a more prudent approach to the marketing of margin loans in light of recent results.

Commonwealth Bank chief executive Ralph Norris defended the bank's behaviour in the market. He said the product was sold through licensed advisers. Losses were correlated to market movements and were a function of the market cycle.

He said: "We believe we have acted responsibly."