Banking sector expert hopes ACCC will block ‘anticompetitive’ buyout

ANZ’s $4.9bn takeover of Suncorp Bank is ‘anti-competitive’ and should be blocked, says Jefferies analyst Brian Johnson.

ANZ’s $4.9bn takeover of Suncorp Bank should be blocked because it will damage competition – raising the prospect of a share-buy back or a change of focus to acquisitions outside banking, influential sector analyst Brian Johnson says.

Mr Johnson, of investment bank Jefferies, is a staunch critic of the transaction, which he believed would markedly lower competition by removing Suncorp as a provider of loans and banking products.

“We believe ANZ’s proposed acquisition of Suncorp Bank is anti-competitive,” he wrote in a note to clients.

“Specifically, ANZ’s smaller housing book has not precluded ANZ from offering the cheapest variable housing rate/biggest mortgage cashback.

Jefferies banking analyst Brian Johnson.

“Incremental housing price competition comes from the broker channel where ANZ and Suncorp Bank are more reliant.”

Mr Johnson said about 52 per cent of ANZ’s loans were sourced from brokers, compared with the Commonwealth Bank at 46 per cent, National Australia Bank with 44 per cent and Westpac at 45 per cent.

Suncorp sources about 75 per cent of its loans from brokers.

“While Westpac differentially price home-loan brand pricing through brokers, an incumbent major bank assuming control of a product supplier could reduce competitive pricing tension,” Mr Johnson wrote, adding that after Westpac snapped up St George and CBA acquired Bankwest, the sector saw “long absent” out-of-cycle mortgage rate increases.

He referred to the Australian Competition and Consumer Commission using compulsory powers to compel rival banks to provide it with detailed information about industry pricing, marketing, technology and customer switching.

The “ACCC is seeking more data than simple (market) shares,” Mr Johnson said.

In December, the competition regulator called for submissions on the proposed transaction by January 18 and signalled it would make a determination in June.

Mark Nathan of Regal Funds Management.

Regal Funds Management’s Mark Nathan said there was evidence for and against ANZ’s acquisition of Suncorp Bank.

“We saw the Telstra and TPG (network) deal get knocked back so they (the ACCC) are not scared to come out and have a fight. Although their track record of winning fights, I gather, is not particularly good,” he said.

That ACCC decision is being appealed. In 2020, the regulator’s block on a proposed merger between TPG and Vodafone was overturned by the Federal Court, which found the deal would not substantially lessen competition.

Mr Johnson outlined two options for an “operationally underperforming” ANZ if the Suncorp Bank deal were stymied.

They included returning $3.5bn raised from investors or using a new non-operating holding structure to pursue other acquisitions. Neither are particularly attractive options in his view.

“Having raised $3.5bn at $18.90 (0.9 times net book value) in July 2022, a buyback at today’s (January 9) $23.67 would be dilutive,” Mr Johnson said.

ANZ may “do something even more unpalatable given the rationale for the (non-operating holding company) restructure is ANZ making acquisitions in the non-banking space”.

ACCC chair Gina Cass-Gottlieb. Picture: Sam Ruttyn

“Reported valuation metrics behind ANZ’s now abandoned discussions with accounting software business MYOB appear challenging … and ANZ had expressed interest in buying real estate platform Domain during its spin-off from Fairfax in 2017.

“History tells us conglomerates rarely generate sustainable shareholder value.”

In July last year, ANZ confirmed talks with private equity group KKR to buy MYOB, which triggered a mixed response from analysts and investors.

Mr Nathan said if the transaction to buy Suncorp’s bank fell over, ANZ had options.

“You’d like to see them return (the capital raised) in some form, or look for other ways to deploy it. They could turn their attention to other targets,” he said.

Another fund manager, who spoke on condition of anonymity, said he would expect ANZ and Suncorp to appeal against any ACCC blocking of the bank acquisition. But he anticipated it was likely to be waved through.

“We are favourably disposed towards this transaction but once the ACCC gets involved these things always get a little bit interesting,” he said.

“The ACCC doesn’t have a great record recently in terms of litigating this stuff. Although it would be a bit of an unusual outcome if the deal were to not go through.”

Queensland Treasurer Cameron Dick. Picture: Dan Peled

He was of the opinion the proposed transaction would not weigh on national competition, given “Australia is one of the most heavily banked markets in the world”. But said the deal would be “quite consequential” at a Queensland-state level.

The ANZ-Suncorp Bank tie-up requires the ACCC’s green light to ensure it won’t substantially reduce competition across various markets, as well as approval from the federal and Queensland governments. State-based legislation would need to be changed to facilitate the takeover of Suncorp’s bank.

Queensland Treasurer Cameron Dick in December said the state was engaging with both banks on the deal. “Any transaction must deliver for Queenslanders, particularly when it comes to skilled jobs and economic prosperity,” he said.

ANZ has committed to no net job losses at Suncorp Bank in Queensland for three years and to not closing the target’s branches over the same period. It has not made the same assurances for its own staff and branches.

ANZ’s authorisation request to the ACCC labelled the banking market “intensely competitive”, but the bank admitted it might bring forward cost-cutting initiatives.

Bendigo and Adelaide Bank’s managing director Marnie Baker last month criticised the takeover, saying it would impede competition.

“(It will) concentrate market share and hand a commanding position in the Queensland market to a big four bank. It will further entrench Australia’s banking oligopoly,” she said.