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ANZ-Suncorp deal blocked by ACCC, cites oligopoly concerns

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By Colin Hay - 
Australian Competition & Consumer Commission

A frustrated Suncorp Group (ASX: SUN) has expressed disappointment at an Australian Competition & Consumer Commission (ACCC) decision to block the sale of its banking division to the ANZ (ASX: ANZ).

The ACCC determined that the proposed acquisition had the potential to substantially lessen competition in the Australian home loan market.

In her response, Suncorp chairman Christine McLoughlin said the bank was “surprised” and “disappointed”.

She declared that Suncorp was prepared to fully support the ANZ through the next step in the merger authorisation process.

Potential impacts on stakeholders and merger process

Ms McLoughlin said that studies involving the bank and external economic and industry experts had determined the deal “would not adversely impact the competitive dynamics in the markets in which we operate.”

“There is nothing we’ve seen throughout the ACCC process that has caused us to change our view on these matters and we believe the Tribunal will accept the merits of our case.

“In fact, the 12 months that have passed since the transaction was announced have only reinforced the rationale for the sale, and the importance of the benefits it will deliver for our stakeholders, the state of Queensland and the broader public.”

She said that Suncorp and ANZ are preparing to make their case to a tribunal, which would be led by a justice of the Federal Court of Australia.

Suncorp Group chief executive officer, Steve Johnston, said a whole spectrum of people will be affected by the decision to knock back the deal.

“This includes the significant jobs and investment package Suncorp and ANZ agreed with the Queensland Government as a consequence of the transaction, and which remains contingent on all approvals being received.”

Mr Johnston said that, should a Tribunal provide approval, the sale would remain subject to the amendment of a merger act and final approval from the Federal Treasurer.

“Subject to all approvals being received, we now expect completion by the middle of the 2024 calendar year.”

ACCC raises competition concerns

In its determinations, the ACCC said the proposed sale failed to measure up to its statutory test, particularly with regard to competition in the market.

It declared it was unable to grant authorisation as it was not satisfied in all the circumstances that the proposed acquisition would impact competition amongst loan providers.

“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,” ACCC deputy chair Mick Keogh 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.”

“Second-tier banks such as Suncorp Bank are 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.”

“The proposed acquisition of Suncorp Bank by ANZ would further entrench an oligopoly market structure that is concentrated, with the four major banks dominating. It also limits the options for second-tier banks to combine and strengthen in a way that would create a greater competitive threat to the major banks.”

ACCC observation on current and future competition

The ACCC said it believed there is an increased likelihood of coordination between the four major banks in the supply of home loans should Suncorp Bank become part of ANZ.

“Coordinated market outcomes mean competition is muted at best, to the detriment of customers.”

“A substantial lessening of competition in home loans would have major flow-on impacts to Australians with a mortgage. More than a third of Australian households have a mortgage, with loans totalling around two trillion dollars, illustrating how critical it is that competition in this market is not substantially lessened,” Mr Keogh 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. This is instead of competing strongly on price, innovation and the quality of their service and products to win customers.”

The ACCC said it was concerned that the Australian home loans market is already at risk of coordination between the major banks for a number of reasons, including 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.

“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,” Mr Keogh said.

“We note 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.”

The ACCC noted that ANZ’s acquisition of Suncorp Bank would boost its market share in home loans, placing it above the NAB, and closer to the Commonwealth Bank and Westpac.

“Increased symmetry between competitors can increase the likelihood of coordination, as there is less incentive to upset the status quo and try to win market share by aggressively competing for customers,” the ACCC stated.

Possible outcome if acquisition doesn’t proceed

“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,” Mr Keogh said.

“The acquisition by ANZ would also remove the potential for a Bendigo and Adelaide Bank (ASX: BEN) deal with Suncorp Bank.”

“That potential combination would likely strengthen and diversify the competitive power of second-tier banks, reducing the likelihood of coordination,” he added.