Finally, some bank competition

Big four banks look set to get increased competition

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published November 7, 2012 10:32 am AEDT

Macquarie Group (ASX: MQG) could become the fifth big bank in Australia, if rumours flying around the media have any truth to them, which could set the cat amongst the pigeons.

According to several media reports, Mark Bouris' Yellow Brick Road Holdings (ASX: YBR) and Macquarie are believed to be discussing a deal where Yellow Brick Road will utilise Macquarie's balance sheet to lend funds to home borrowers. Adding to the rumours, Yellow Brick Road shares have been placed in a trading halt this morning.

As a start, and to encourage people to take out loans with the new group, Yellow Brick Road apparently plans to undercut the banks' mortgage interest rates by more than one full percent.

Related: Big four banks snub borrowers

That could put enormous pressure on the big four, including Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA), who are all struggling to maintain their margins between what they lend at and what they pay on deposits. The big four may be forced to cut rates, or lose business to Macquarie and Yellow Brick Road.

According to reports, the deal could be announced as early as this week, and marks a significant return to the retail market by Macquarie. The group has been plagued by global economic issues in recent years, with revenues falling due to low levels of corporate activity. A lack of mergers and acquisitions, very few IPOs, and low equity market trading volumes have contributed to many of its divisions reporting lower revenues and profits and the equities division even reporting a loss last year.

With little sign of corporate activity increasing and therefore revenues and profits under pressure, it makes sense for the company, once known as the 'millionaires factory', to seek out other opportunities.

Foolish takeaway

The entry of a new bank should also be good for the banking sector and consumers, increasing competition and not allowing the big four to get 'lazy'. Consumers will be hoping the news turns out be more than just rumours.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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