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The Australian Competition and Consumer Commission (ACCC) has decided not to grant merger authorisation for ANZ Banking Group (ANZ) to acquire Suncorp Group’s banking arm over concerns over home loan competition and SME lending competition.
The ACCC considers 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.
ACCC deputy chair Mick Keogh stated: “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.
“These banking markets are critical for many home owners and for Queensland businesses and farmers in particular. Competition being lessened in these markets will lead to customers getting a worse deal.”
The ACCC said that non-major 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,” Mr 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. 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.
“We are not satisfied that the acquisition is not likely to substantially lessen competition in the supply of home loans to Australian consumers.
“We consider 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 $2 trillion, illustrating how critical it is that competition in this market is not substantially lessened.
“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.
“While there is evidence of increased competition in the home loans market recently, including in the form of cashback offers to consumers, we are not persuaded that this level of competition will continue.
“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 suggested the acquisition of Suncorp Bank would boost ANZ’s market share in home loans to be above NAB and closer to the Commonwealth Bank and Westpac.
As at June 2023, ANZ’s owner-occupied book was $186.5 billion and its investor loan book was $93.6 billion. It was the smallest of the big four banks.
Suncorp, meanwhile, had $36.6 billion in owner-occupied loans and $14.7 billion in investor loans at the end of June 2023.
CBA’s owner-occupied book was $366 billion while its investor book was $180 billion; Westpac had $293 billion in owner-occupied mortgages and $155.9 billion in investor loans; while NAB has $201 billion in owner-occupied loans and $108.8 billion in investor loans.
Increased symmetry between competitors could 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, it said.
“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.
‘Surprised and disappointed’
Noting the decision, ANZ chief executive Shayne Elliott said: “We are naturally disappointed and disagree with the ACCC’s decision. We are closely reviewing the determination and will seek an independent decision through the avenues of review available to us.
“We believe the acquisition will improve competition, which will benefit Australian consumers, particularly in Queensland. All of the relevant markets are intensely competitive and will continue to be intensely competitive after the acquisition.
“Indeed, the acquisition will create a combined bank which is better equipped to respond to competitive pressures, and deliver significant public benefits, particularly in Queensland.”
Suncorp Group chairman Christine McLoughlin said Suncorp was “surprised and disappointed" with the determination and would “fully support ANZ through the next step in the merger authorisation process”, being a referral of the ACCC’s decision to the Australian Competition Tribunal.
“When we embarked on this transaction, we were of the firm belief it was in the best interests of our customers, shareholders and employees and that it would provide a net benefit to the Australian economy,” Ms McLoughlin said.
“Together with external economic and industry experts, we determined that this 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.
“Together with ANZ, we will make our case to the Tribunal, which is led by a justice of the Federal Court of Australia. The Tribunal will look at all of the evidence with fresh eyes before forming its own view.”
Should the Tribunal provide its approval, the sale remains subject to the amendment of the State Financial Institutions and Metway-Merger Act and final approval from the federal Treasurer under the Financial Sector (Shareholdings) Act.
Subject to all approvals being received, the proposed merger would potentially complete by the middle of the 2024 calendar year.
Suncorp Group CEO Steve Johnston said the group remained “fully committed” to Suncorp Bank while the process continued.
“We will continue to deliver valued banking and insurance products and services through our trusted brands and dedicated people. Our focus on delivering for our customers, communities and shareholders does not change,” Mr Johnston said.
The ACCC’s full reasons will be released on Monday (7 August), following confidentiality checks with relevant parties.