The bank has invested more than $1bn in ANZ Plus
The barely challenged lack of competitiveness or even relevance of Suncorp Bank is the dark heart underlying the full decision of the Australian Competition Tribunal to grant authorisation for ANZ to buy the struggling bank.
The Tribunal published a (brief) summary of reasons a little under two weeks ago.
Following an opportunity for all the parties to redact sensitive material, the Tribunal yesterday published a 222 page, 78,000 word opus on its full reasons. In time, this may prove to be a document that sets new guideposts for any big bank set on a merger binge in the years ahead.
ANZ first entered into an agreement with Suncorp Group to buy Suncorp Bank for A$4.9 billion in July 2022.
A year later the ACCC, somewhat surprisingly, refused to authorise the merger – a decision soon appealed by ANZ and Suncorp to the Australian Competition Tribunal.
Following two weeks of sometimes perplexing legal argument late last year, the ACT handed down its decision on February 20; an easy and even straightforward win for ANZ and Suncorp.
In a decision riddled with redactions, there is little clear insight on critical maters, such as the Suncorp board’s deliberative process over recent years to value the bank and explore sale options. This relates most of all to Bendigo and Adelaide Bank’s periodic approaches, dating from early 2022.
In its rejection of the merger, the ACCC placed great weight on the ‘Bendigo Merger counterfactual’, as indeed did Bendigo in the Tribunal hearings. Unfortunately, every nugget and number that will interest external analysts (on synergies, capital benefits and credit ratings, for example) has been blacked out.
The Tribunal said it accepted, on balance, “that in determining the degree of likelihood of the Bendigo Merger counterfactual occurring, it does fall within the broad concept of a realistic commercial possibility, notwithstanding some significant challenges to its potential execution, for the following principal reasons.
“Both Bendigo and Suncorp, objectively, would have compelling incentives to pursue a merger if the Proposed Acquisition did not proceed. The large increase in scale and the doubling of its current market share in home loans, would provide Bendigo with a greater asset base over which to fund fixed costs.
“A merged Bendigo/Suncorp Bank would also facilitate expenditure on improvements in information technology necessary to address legacy issues for both banks and improve competitiveness in processing loan applications.”
On another thorny topic – Bendigo’s capability to absorb Suncorp Bank – the Tribunal observed: “the Tribunal accepts that the integration of Suncorp Bank would be more complex and on a materially different scale to past successful integrations undertaken by Bendigo.
“To the extent that Bendigo would encounter increased difficulty integrating Suncorp Bank, the Tribunal accepts that Bendigo would be strongly motivated to overcome such difficulties …. the Tribunal is not persuaded that they would be insurmountable.”
Then on the apex theme of ‘coordination’ among the major banks (pre and post-merger) the Tribunal wrote that: “The key question on a merger authorisation application is, how does the merger change the likelihood of successful coordination, if at all?
“That question necessarily involves consideration of whether the proposed merger could make the market more vulnerable to coordination, or how coordination might become more complete or more sustainable post-merger.
“Evidence of actual coordination, in isolation, will not answer this question. Indeed, in some cases, it might suggest that the proposed merger would make little difference.
“The most obvious change in a market following a merger, is concentration. With fewer firms in the market, it generally becomes easier to reach consensus, and to detect deviations from that consensus. Similarly, an increase in symmetry may make it easier to may make it easier to reach a consensus and reduce the incentive to cheat where the interests of the remaining firms in the market become more closely aligned.”
In the end, The Tribunal concluded it was “firmly of the view, that the structure of the home loans market can fairly be characterised as moderately concentrated.
“Further, the Tribunal accepts that there was no evidence that Suncorp Bank had recently achieved a rapid increase in market share, driven innovation in the market, or tended to charge lower prices than other market participants.”
The widespread publication by the major banks of their standard variable rates for mortgages “provides significant price transparency, and changes in their standard variable rates generally follow changes in the cash rate, which serves as a “’focal point’ for price adjustments”, the Tribunal said.
“The use of unpublished discretionary discounts, however, by the major banks in pricing home loans, necessarily detracts from price transparency. Market intelligence (on discounting), however, falls well short of the immediacy and objectivity of published prices, such as the prices prominently posted on signboards at petrol stations, or online by airlines on their websites.”
The Tribunal noted that “there was some evidence that, at least, CBA may have moved away from offering unpublished discretionary discounts to consumers”, at least in late 2023, intel that may be inferred to have been shared by ANZ.
The tribunal noted that the major banks combined market share in home loans had fallen by around 700 basis points to 75.2 per cent over 10 years.
“The Tribunal views that loss of market share as materially reducing, but certainly not eliminating, the prospect of coordinated conduct by the major banks in the home loans market.
“The ACCC’s submission that this reduction is relatively insignificant because it only amounts, on average, to a reduction of 1 percentage point a year, spread across three banks, is not persuasive. It injects an unduly static approach to the analysis to focus on average annual reductions, rather than the extent of a reduction over a broader time horizon.”
The Tribunal went on to argue that “other considerations less conducive to coordination, such as:
(a) the increasing use of brokers to source home loans, who are also subject to regulatory requirements to put consumers’ interests first,
(b) the growth in the market share of Macquarie,
(c) the increasing use of technology to both reduce banks’ turnaround times for applications, and allow consumers to compare offerings from different banks more readily, together with
(d) the increasing use of electronic settlements through PEXA are likely to remain and become even more significant in the foreseeable future” thus demolishing the ACCC’s and Bendigo’s submissions that a return to more effective coordination was probable post the ANZ-Suncorp Bank merger.”
Finally, and most tellingly, the Tribunal’s conclusions around the competitiveness, or otherwise, of Suncorp Bank in the ‘No Sale counterfactual’ permeate the court’s decision.
On agribusiness, for example, it said: “the Tribunal accepts that Suncorp Bank’s offering to agribusiness customers is likely to be less competitive if the trend towards consolidation continues and the needs of agribusiness customers increase in complexity.
“As the applicants submit, in the absence of investment in digital capabilities to reduce the need for manual work and intervention, an investment that Suncorp cannot appear to make at acceptable ROE, Suncorp Bank’s service offering to agribusiness customers with increasingly complex needs, will be less effective.”
One SME banking it wrote: “the Tribunal considers that an independent Suncorp Bank in the No Sale counterfactual would be likely to impose a relatively limited constraint in markets for SME banking in Queensland.”
And one last detail from ANZ CEO Shayne Elliott that may not be well known: “we have already spent over a billion dollars building the ANZ Plus platform.”
For bank investors, there is one more topic to ponder: might Bendigo and Adelaide Bank’s legal advisers have unccovered errors in the reasoning and points of law on which to mount an appeal? To frustrate ANZ if nothing else.