* Home mortgage market key profit centre for Australia's BigFour banks
* Macquarie's push into home mortgages seen as smart use ofcapital
* Debate rages over whether housing market in boom or bubble
By Jackie Range and Cecile Lefort
SYDNEY, Oct 28 (Reuters) - Australia's largest investmentbank Macquarie Group Ltd is pushing rapidly into homemortgages, threatening to disrupt a highly profitable segment ofthe banking industry long dominated by the country's top fourlenders.
Australia and New Zealand Banking Group Ltd (ANZ),Commonwealth Bank of Australia, National Australia BankLtd (NAB) and Westpac Banking Corp are ontrack to report a combined record profit for the fifthconsecutive year. Part of the profit stems from their leadingpositions in the country's $1.25 trillion mortgage market.
Together, the four write as much as 90 percent of thenation's home loans. They typically make a profit of almostA$75,000 ($71,900) over the lifetime of an average sized 25-yearhome loan, excluding fees charged, according to estimates by TheAustralia Institute, a Canberra-based think tank.
The prospect of such lucrative gains appears to have enticedMacquarie to expand rapidly into residential mortgages in itsown backyard this year. Such a move, analysts say, has thepotential to shake up the industry, offering borrowers acompetitive alternative to the Big Four.
"Macquarie is probably the standout and the more aggressivemortgage lender at the moment," said Paul Dowling, principalanalyst at East & Partners. The research firm says theinvestment bank is deploying "considerable cash balances".
A Macquarie spokeswoman declined to comment on the bank'smoves in the mortgage sector.
Macquarie's share in mortgages for investment purposesjumped 25 percent in the three months to July alone, althoughthat still only accounts for 1.1 percent of the overall investormortgage market, UBS analysts have calculated.
Its push comes as Macquarie diversifies away from investmentbanking into less riskier areas, and is seen as smart use ofcapital when return on equity from the mortgage market is high.The investment bank also has more liquidity, giving it a strongbase to fund home loans.
Other firms too are delving deeper into Australia's homeloans market, including mortgage group Yellow Brick RoadHoldings Ltd, 14.9 percent-owned by Macquarie, and theAustralian arms of ING Groep NV and Citigroup Inc.
To raise more funds to lend to home buyers, those smallerlenders are now securitising mortgages in a market which came toa halt just a few years ago after the global financial crisisspooked investors and lifted the cost of funding to exorbitantlevels.
While funding costs are still significantly more expensivethan in 2006 before the crisis, they have sufficiently fallenfrom the peak to allow small lenders to take a crack at the BigFour's stranglehold of the home loans market.
The Big Four haven't always had such dominance. Before thecrisis, smaller lenders had 30 percent of the market. Theyincluded Australian regional banks such as St George Bank,Suncorp Metway and Adelaide Bendigo Bank, and non-bank lenderslike Resimac and FirstMac.
Australian arms of international lending institutions werealso part of the group, with Citi and ING able to gain a solidpresence even without the brand recognition in the country thatMacquarie enjoys.
FROTH TO BE FEARED?
Talk that Australia's housing market is in a bubble hasintensified with a spike in an index for home prices in thecountry's major cities to an unprecedented high as well as closeto record auction clearances in parts of Sydney.
Financial authorities have sought to quash such talk, withthe central bank calling it "unrealistically alarmist". But thefears themselves are real and the banks' earnings over the nexttwo weeks will be scrutinised for any hints as to the health ofthe mortgage market.
ANZ, Commonwealth Bank, NAB and Westpac are on track toreport an 8.5 percent rise in combined full-year cash earningsto A$27.1 billion.
Any shifts in home loan market share for individual banksare also set to go under the microscope, with analysts citingcommentary on mortgage demand and pricing from the banks asdrivers for share prices.
Australian mortgages represent 61 percent of gross loans andadvances for Westpac, 60 percent for Commonwealth Bank, 45percent for NAB and 42 percent for ANZ, according to figuresfrom UBS.
Westpac may be of particular interest after it experiencedslower growth in its domestic mortgage book of 3.8 percent inthe 12 months to the end of August, compared to the bankingindustry average of 5.1 percent.
It reports on Nov. 4 and is expected to post annual cashearnings, which exclude one-off and non-cash items, of A$7.1billion, up 7.6 percent on the year before, according to anaverage of estimates from three analysts polled by Reuters.
ANZ reports on Oct. 29 and is projected to book a 9.8percent rise in full-year cash earnings of A$6.4 billion. NAB isexpected to post a 6.8 percent rise in annual cash earnings toA$5.8 billion on Oct. 31.
Commonwealth Bank, the nation's biggest lender by marketvalue, is expected to report first-quarter cash profit on Nov. 6of around A$2.15 billion, up from A$1.85 billion from a yearearlier, Morningstar analyst David Ellis has projected.
It reported full-year cash profit of A$7.82 billion inAugust.
Two analysts surveyed by Reuters expect Macquarie, whichreports on Nov. 1, to log first-half net profit of A$475million, up 32 percent from a year earlier.
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