Finally, Some Bank Competition

08 Nov 2012 - Mike King from http://finance.ninemsn.com.au

 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.

That could put enormous pressure on the big four, includingAustralia 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.