History was made on the ASX recently as the seemingly unbreakable cabal of the big four banks was broken.
On Wednesday afternoon, Macquarie Group Ltd (ASX: MQG) had a market capitalisation of $77.68 billion, eclipsing Australia and New Zealand Banking Group Ltd (ASX: ANZ)'s $76.87 billion.
That means ANZ is now the fifth-largest bank while Macquarie takes its seat among the big four.
Australian competition authorities have long held the belief that the four majors — ANZ, Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) — had such unassailable leads in the market that they would never be allowed to merge or even cooperate.
So how did Macquarie sneak in?
Macquarie shares have skyrocketed this year
A major contributor is that Macquarie shares have climbed up almost 50% so far this year. The stock started January at $140 but traded for $204.59 on Wednesday afternoon.
This has much to do with how most of its business is in investment banking rather than retail — and the market thus treats it as a growth stock.
Meanwhile, it's been many years since ANZ, Westpac, NAB and CBA shares have been considered anything but value (or income) stocks. This is due to their long-established stranglehold in low-margin consumer banking.
To demonstrate, the ANZ share price is lower now than its highs before the global financial crisis 14 years ago. It's the same case for NAB stock.
Macquarie is having its cake and eating it too
Ironically for regulators, Marcus Today founder Marcus Padley told Livewire recently Macquarie has relatively little competition in the Australian market.
"In the US, the competition amongst the investment banks is savage. You have a choice. But not in Australia."
But it's now starting to also eat into the consumer market that the big four have dominated for so long.
"Their recent foray into the domestic mortgage market, the citadel of the big high-street banks, has grabbed market share and hurt their unimaginative competitors," Padley said.
"I have a Macquarie mortgage. They are so much better to deal with. They have something quite unique in my personal banking experience — something called customer service. There is nothing they cannot do."
Making the right bets
According to analysts, Macquarie has also done well to invest in infrastructure and businesses that are on the right side of a world moving to net-zero emissions.
"Macquarie is a 'picks and shovels' play on decarbonisation," Fidelity International portfolio manager Kate Howitt told The Motley Fool this month.
"We know that over the next 25 years, the global economy has to spend at least $100 trillion to decarbonise… Macquarie has just been setting itself to be right at the heart of a huge and growing investment pipeline that the world's got."
Macquarie is one of Howitt's 2 largest holdings.
"They have been focusing their recruitment… on scientists, engineers — if they understand the real nuance of how these new and emerging technologies work, then they'll be better placed to assist on the financing of that," she said.
"So that just has a very, very long runway of growth ahead of them."
