Embarrassing defeat for the competition watchdog

ACCC chair Gina Cass-Gottlieb. Picture: Aaron Francis

The ACCC’s track record in merger decisions took another blow on Tuesday with the Competition Tribunal rejecting its decision to block the $4.9bn ANZ-Suncorp merger.

ANZ now has the dubious honour of winning approval to spend $4.9bn to buy a 2 per cent home loan market share, and the issue is whether the ACCC’s fears are correct and there is a flood of big bank takeovers of smaller lenders.

The ACCC argued that the ANZ billions would be better spent on offering improved deals for consumers to boost its market share.

The tribunal, in deciding there was no substantial lessening in competition, pointed to the increasing share of the market held by mortgage brokers as a mitigating factor against the power of the big four banks.

CBA is the only big bank which generates more home loans in-house rather than through brokers – which in part explains its superior profits, because by handing loan initiation to the brokers, the banks are losing margin.

Mortgage brokers now account for just over 70 per cent of all new home loans, and while they then refer the client to a big bank, the brokers are the new point of contact, not the bank.

The ACCC took more note on who ultimately issued the loan against who found the client.

Ironically, brokers say the ANZ still lags the market on key services which, irrespective of the Suncorp ruling, will mitigate against its growth.

The ACCC, under Gina Cass-Gottlieb, has had a great run in court but that ended with Tuesday’s ANZ decision.

It said that while the decision was disappointing it showed the strength of the merger process, with the tribunal being an independent arbiter.

This point is correct and important because under the ACCC’s merger reform proposals, companies will have to show the regulator how competition is not lessened under a deal and the ACCC needs to be satisfied the companies are correct.

In this case the ACCC was not satisfied there would not be a significant lessening of competition – however, the tribunal was satisfied.

This is the test now for authorisation applications and will be the new test under the ACCC reforms, but authorisation also allows public benefits to overcome any competitive disadvantage, as was the case with Brookfield and Origin.

The ACCC is right to point to the strength of the process with an independent arbiter, but conversely, Tuesday’s decision shows why another arbiter is necessary because the ACCC arguably relies too much on theory and not enough on evidence.

Big business lawyers also argue the time taken to get to this ruling – about two years – is too long and while banking is systemically important there are many other merger decisions which don’t have the same market wide significance.

The decision on merger reforms is now with Treasurer Jim Chalmers, and is expected shortly.

The strong checks and balances on display in the ANZ case are good but need to be backed by thresholds under the new regime, if approved, so business is not unnecessarily delayed.

The ACCC argued increased market share to ANZ would strengthen the market power of the big four banks and make it easier for them to co-ordinate interest rate decisions.

It also expressed concern about the impact on key sectors such as small business loans and agribusiness.

These concerns were noted by the tribunal, as was the chance of more co-ordinated decisions.

But in the end the tribunal was less concerned than the ACCC.

The ACCC’s decision was politically correct in that big banks are on the nose in Canberra and time will tell whether the regulator’s fears will be realised.

Rival bidder Bendigo has already made it clear it believes the deal approval will be bad for consumers, and as an independent it will now be under more competitive pressure.

Cass-Gottlieb recused herself from the original decision because of past work for the merger parties but the tribunal decision now clears her involvement in commenting on the decision.

Competition Tribunal president Justice Michael O’Bryan, who has backed the ACCC in recent decisions, was also absent from this ruling.

The ANZ how paid a huge sum for what others in the industry regard as a minor prize and chief executive Shayne Elliott now has the chance to prove the naysayers wrong.

The ACCC will spin this court defeat in Canberra as proof the new system that it is advocating works, and one more big bank merger as a reason why the law needs to be changed.

Big business opposes the ACCC merger reforms and at the very least wants stringent thresholds to minimise the interventions.