ANZ readies high stakes appeal to keep $4.9b Suncorp deal alive

ANZ Bank this week launches its high-stakes attempt to overturn the competition watchdog’s rejection of its $4.9 billion bid for Suncorp’s banking arm, as ANZ boss Shayne Elliott’s plan to create Australia’s third-largest home lender hangs in the balance.

Over nine days of hearings, barristers for ANZ and Suncorp will try to convince the Australian Competition Tribunal that the merger, the biggest banking deal since Westpac bought St George in 2008, will not significantly lessen competition in the $2.1 trillion mortgage market.

ANZ Bank this week launches its appeal against the ACCC’s rejection of the bank’s plan to buy Suncorp’s bank for $4.9 billion.Credit: Will Willitts

ANZ and Suncorp are appealing the August rejection by the Australian Competition and Competition and Consumer Commission (ACCC), which said allowing ANZ to swallow Suncorp’s banking unit would entrench the nation’s banking oligopoly.

A key debate is likely to be the extent of competition in the mortgage market, the biggest source of loans for Australian banks and a crucial driver of profits.

Banks’ returns from mortgages have fallen sharply recently amid fast growth from the likes of Macquarie Group, and ANZ argues this proves the idea of a cozy banking oligopoly is outdated. But the ACCC maintains ANZ would have less incentive to compete fiercely if it bought Suncorp’s bank, which would see ANZ overtake National Australia Bank as the third-largest mortgage lender.

ANZ’s submission, lodged with the tribunal last month, argued that buying Suncorp would create a more efficient bank better able to compete with industry giant Commonwealth Bank, claiming savings from the merger would be passed on to customers.

It said, “the evidence does not establish an existing oligopoly” among the major banks, highlighting the threat of smaller players such as Macquarie and business-focused Judo Bank.

“Scale benefits will not dilute ANZ’s incentives to compete to retain Suncorp Bank’s customers, who can readily switch to other banks,” it says.

The ACCC submission responded that the home loan market was in fact “relatively static” and the big four banks have entrenched power over rivals because they enjoy cheaper funding.

The watchdog argued the recent period of intense mortgage competition may not continue because it was partly caused by interest rates jumping sharply from ultra-low levels and a bulge of fixed-rate loans expiring. “Given that context, it cannot be presumed that recent levels of competition will endure,” the watchdog said.

The ACCC was also unconvinced by ANZ’s claim that the long-term slide in return on equity and net interest margins (the difference between banks’ interest income and interest paid out) is evidence of fierce competition. It said there has been less change in the lending spread – the difference between banks’ average lending rates and the overall cost of debt funding.

Bendigo and Adelaide Bank are also against the ANZ-Suncorp deal, saying there is a “commercially realistic likelihood” of a Bendigo-Suncorp bank merger if the ANZ deal is blocked. Suncorp has dismissed this potential Bendigo-Suncorp merger as not credible.

The tribunal’s final ruling is expected early next year and market views on ANZ’s chances of success are mixed.

Jefferies analyst Matt Wilson predicted the deal would ultimately be approved, arguing that allowing ANZ to buy Suncorp’s bank would make it a more effective competitor against a home loan giant such as CBA.

“I think it will be approved. I think it will enhance home loan competition,” said Wilson, who has a “buy” rating on ANZ.

Meanwhile, Opal Capital chief investment officer Omkar Joshi said that gaining roughly 2 per cent market share by buying Suncorp’s bank, if allowed by regulators, would not “move the dial” for ANZ’s overall business. But he said a sale would be a win for Suncorp, given the difficulties in the regional banking sector.

“I would probably say the deal is better for Suncorp than it is for ANZ,” Joshi said. “I would not be surprised if it eventually does get through.”

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