The competition watchdog has rejected ANZ Bank’s $4.9 billion planned purchase of Brisbane-based Suncorp’s banking division.
On Friday, the Australian Competition and Consumer Commission (ACCC) vetoed what would have been the biggest transaction in Australian banking since Westpac’s 2008 takeover of St George during the global financial crisis.
ACCC deputy chair Mick Keogh said the competition watchdog weighed up whether there would be any substantial lessening in competition in banking, and whether that could be offset by public benefits from the merger.
“We are not satisfied that the acquisition is not likely to substantially lessen competition in the supply of home loans nationally, small to medium enterprise banking in Queensland, and agribusiness banking in Queensland,” he said.
“These banking markets are critical for many homeowners and for Queensland businesses and farmers in particular. Competition being lessened in these markets will lead to customers getting a worse deal.”
ANZ is expected to appeal the decision.
ANZ had argued the broader public would benefit because the deal would make ANZ a stronger bank, which would allow it to serve customers more efficiently.
However, smaller banks and consumer groups opposed the deal and the ACCC said it did not have the evidence to support ANZ’s claim. In April, the watchdog said it was unconvinced the deal would deliver the public benefits claims put forward by the banking giant and called for more information on the deal.
The ACCC has also said it was unconvinced by ANZ’s claims that the deal would provide public benefits to Queensland, or to prudential stability.
The big four banks control about 75 per cent of the mortgage market, and regulators have long suspected these giants don’t compete sharply enough because of banks’ ability to price signal, the similarities of the major banks in terms of size and structure, the stability of the existing market structure and high barriers to entry.
On Friday, Keogh said there was an increased likelihood of coordination between the four major banks in the home loan market if Suncorp were to become part of ANZ.
“Coordinated market outcomes mean competition is muted at best, to the detriment of customers,” he said.
“The proposed acquisition increases the likelihood that the major banks adopt a ‘live and let live’ approach to each other, aimed at maintaining or protecting their existing market shares. While there is evidence of increased competition in the home loans market recently, including in the form of cash-back offers to consumers, we are not persuaded that this level of competition will continue.”
The ACCC also noted recent commentary by bank chief executives that they are stepping back from aggressive promotions.
“If this market was truly competitive, we would not expect to see banks publicly flagging plans to reduce the competitiveness of their offerings,” he said.
The competition watchdog said second-tier banks such as Suncorp were important competitors against the major banks, especially because barriers to new entry at scale into banking are very high.
“Evidence we obtained strongly indicates that the major banks consider the second-tier banks to be a competitive threat,” Keogh said. “The proposed acquisition of Suncorp Bank by ANZ would further entrench an oligopoly market structure that is concentrated, with the four major banks dominating.
The ACCC said a merger would also have limited the options for second-tier banks to combine and strengthen in a way that would create a greater competitive threat to the major banks.
“If ANZ doesn’t acquire Suncorp Bank it will remain the smallest of the major banks, giving it a stronger incentive to disrupt any coordination in the market,” Keogh said. “The acquisition by ANZ would also remove the potential for a Bendigo and Adelaide Bank deal with Suncorp Bank. That potential combination would likely strengthen and diversify the competitive power of second-tier banks, reducing the likelihood of coordination.”
Keogh noted the Suncorp’s own documents showed that it was considering alternatives to the proposed sale of its banking arm to ANZ.
However, Suncorp, which would have become a pure-play insurer, said in June that there was “no real commercial likelihood of any alternative transaction such as a merger with any other mid-tier bank.”
More to come
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Source: Thanks smh.com