Big 4 to Become Big 5 with Macquarie-Yellow Brick Road Deal

A fifth Australian bank will likely soon join the ranks of the Big 4, the monicker for Westpac, National Australia Bank, Commonwealth Bank of Australia and ANZ Bank.

With the planned inking of the deal between Macquarie Group and Yellow Brick Road, media and Australia's banking community would soon have to get used to referring to the five financial institutions as the Big 5.

The agreement between the Macquarie Group and Yellow Brick Road is expected to lead to more competition in the residential home loan business in Australia, which is controlled 80 per cent by the big four. Under the deal, aggressively priced mortgage products will be offered to consumers through Yellow Brick Road's 130 outlets.

"Plenty of commentators, including politicians, talk about the need for competition. This is a game changer that will take the big four head on," The Sydney Morning Herald quoted Yellow Brick Road Chairman Mark Bouris.

He said the agreement would bring back choices, access and competition similar to the 1990s when he established Wizard Home Loans which he eventually sold to GE Money for $500 million.

Treasurer Wayne Swan has been urging Australian home loan borrowers to take their business to other lenders since the big four has consistently been refusing to pass in full to borrowers overnight cash rate cuts made by the Reserve Bank of Australia the past months.

Reports said the deal will compete with the big four by offering interest rates 1.15 percentage points lower rates on all new home loans for the first year of the loan and another 0.86 percentage point discount for the remaining years of the loan.

In preparation for the agreement, Yellow Brick Road halted trading of company shares on Wednesday morning. As early as Tuesday, speculations about the fifth bank circulated at the Flemington Racecourse where the 2012 Melbourne Cup was held. Reports said talks at the Birdcage of Flemington focused on interest rates and racing tips.

Yellow Brick Road said it would make an announcement before the start of trading on Friday, Nov 9, to address the speculations.