Finally, some bank competition

Big four banks look set to get increased competition

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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.

If you only invest in one company this year, make it our “Top Stock for 2012-13”. Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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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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