The big four major banks have taken another step towards their stranglehold of Australia's mortgage market, after the Australian Consumer and Competition Commission (ACCC) said it would not oppose the Commonwealth Bank's (ASX: CBA) plan to buy up the remainder of Aussie Home Loans.
Aussie, as it's known, had a market share of about 6%, and the ACCC says that CBA's plan to increase its stake to 80% with an option to purchase the remaining 20%, would not result in a substantial lessening in competition. It's estimated the big four, including CBA, ANZ Bank (ASX: ANZ), Westpac Banking Corporation (ASX: WBC) and National Australia Bank (ASX: NAB) control more than 80% of the market, according to data from the Australian Bureau of Statistics and the Australian Prudential Regulation Authority (APRA).
Aussie Home Loans currently has around 750 mortgage brokers around the country, and plans to continue offering home loans from a range of lenders, although it's likely its parent's loans may appear more frequently and higher up the list of options for borrowers. The ACCC confirms this suggesting that Aussie branded home loans would be financed by the Commonwealth Bank.
CBA also holds a 17% share of mortgage broker Mortgage Choice Limited (ASX: MOC), although at this stage it's unclear whether CBA will pursue a full takeover of the company.
"In reaching its view, the ACCC took into account the competitive constraint arising from the presence of a number of alternative suppliers of home loan products and mortgage distribution services," chairman Rod Sims said in a statement.
Since the global financial crisis, the four majors have increased their grip on the mortgage market, either through buying up smaller competitors, such as Westpac's takeover of St George and RAMS and CBA's acquisition of BankWest, reluctance by consumers to switch lenders, and a lack of serious competitors. Before the GFC, the banks were estimated to hold just 65% of the mortgage market.
Foolish takeaway
The biggest winner from the takeover appears to be 'Aussie John' Symond, with the deal reportedly valued at around $277 million. That's on top of the funds CBA has already forked out for its existing 33% stake.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
