ANZ chief Shayne Elliott’s hopes of buying back market share through the acquisition of Suncorp’s banking arm could hang on whether the competition regulator accepts the market impact assessments of independent expert Mary Starks from Flint Global.
The ACCC this week released a 226-page report prepared by London-based Starks, who it commissioned to study the likely effects on banking competition of the proposed merger compared to a counterfactual scenario of a union between Bendigo Bank and Suncorp.
Starks, who has deep experience as a senior regulator in the UK financial services and energy industries, advises the ACCC in her report that an ANZ takeover of Suncorp would have a “real chance” of substantially lessening competition in the national home loans market because it would thwart the creation of a significant fifth industry force - a merged Bendigo-Suncorp enterprise.
Throughout her report, Starks highlights that a merger of Bendigo with Suncorp’s banking arm would be more likely to counteract an historical tendency of the four major banks – ANZ, CBA, NAB and Westpac – to engage in coordinated conduct in the mortgage market.
Coordinated conduct is a feature of oligopoly industries in which a handful of dominant firms match pricing and product features to optimise collective profitability.
The Australian mortgage market is often classified as an oligopoly by academic economists because the four major banks collectively write about 75 per cent of all home loans.
“The (ANZ) acquisition prevents the creation of a significant competitor in the market in the form of a merged BEN/Suncorp Bank entity, which will likely pose a stronger competitive constraint on the major banks…and undermine coordination,” Starks told the ACCC in her report.
“In my view coordination has been present in the market in the past, appears currently to have broken down (likely as a result of rapidly changing market conditions) but could reassert itself again when conditions stabilise.”
Starks also found that ANZ’s acquisition of Suncorp would have a real chance of substantially lessening competition in the Queensland SME and agribusiness lending markets because the target bank was an effective lender to small businesses throughout the state.
“The acquisition will reduce the number of competing firms in every local market where ANZ and Suncorp both operate…it appears that Suncorp Bank is a vigorous and effective competitor in agribusiness banking (particularly in Northern Queensland), and especially so with respect to serving small and medium agribusinesses, suggesting that it is a significant constraint on ANZ and other banks,” Starks concluded.
“The acquisition will result in two towns (Ayr and Chinchilla/Miles) having only one competitor present post-acquisition, and two towns (Cairns and Chinchilla/Miles) that will have no independent regional banks post-acquisition.
“These towns are within reasonable driving distance from other towns that have more competitors present; however these competitors will need adequate capacity for expansion to defeat any attempt by the merged entity to raise prices or reduce service quality.”
The section of the report addressing Starks’ finding that competition would be substantially reduced in SME lending across Queensland was mostly redacted.