Why ANZ’s gamble was a losing hand

ANZ chief executive Shayne Elliott. Picture: Arsineh Houspian

ANZ and Suncorp made a fundamental mistake in trying to clear their $4.9bn bank merger by way of authorisation by the ACCC instead of an informal clearance.

Whether the outcome would have changed is moot but the fact is the dice was loaded against ANZ the moment it applied for an authorisation because the bank bore the onus of proof that the deal didn’t lessen competition.

ANZ must now take the decidedly politically unpalatable choice of appealing to fight for a deal that would boost its market share by just over 2 per cent.

It’s not a good look for the bank and neither is it for Suncorp, which faces a market discount for being a financial services conglomerate.

The decision means that, subject to the appeal before Justice Michael O’Bryan in the Competition Tribunal, the big four banks can forget any plans to buy a second-tier bank, unless it is going broke, like Bankwest post the 2008 global financial crisis.

Back then, the Reserve Bank told the ACCC to back off and arranged for CBA to buy the West Australian lender when it lost support from its UK parent.

If Brookfield’s Stewart Upson was nervous before about his $18.4bn Origin acquisition, he will be more so today, in part because he has given the ACCC no extra time to make the decision due early next month.

Right now the Origin takeover looks challenged because of concerns about Brookfield’s ownership of transmission company Ausnet, and it comes down to how Upson structures his promise to invest $20bn-$30bn in renewables post the deal.

Productivity Commissioner Dr Stephen King.

At first sight the promise is unenforceable, but Brookfield has restructured the offer in a way that the ACCC may well find more ­acceptable, and Upson looks much better placed.

The competition regulator, contrary to popular opinion, operates in a real world that says at a time when the uncompetitive mortgage market makes it tough in the present economy, it is not going to give a big four bank more market power.

Amid the “global boiling” scenario, it is also going to listen when Brookfield’s Upson says he will spend $25bn on renewables if you clear the Origin takeover.

Upson it seems has read the tea leaves and has worked to overcome initial opposition to his Origin deal with tighter undertakings.

ANZ was trying to argue how competitive banking is today, which isn’t supported by Macquarie and the big four taking their foot off the accelerator at the same time right now.

Likewise, if competition is as real as ANZ’s Shayne Elliott claims, he should be able to pull price and service levers to engineer the 2.3 per cent market share he picks up with Suncorp.

Pivotal evidence in the case came from former ACCC commissioner and present Productivity Commissioner Stephen King in support of Bendigo Bank, which is the counterfactual in this deal.

In his submission, King noted “compared to the ‘alternative buyer’ counterfactual, the acquisition of Suncorp Bank by ANZ is a clear substantial lessening of competition in the national market for retail home loans”.

“In part, this substantial lessening of competition arises because the acquisition will stabilise the existing co-ordinated conduct between the major banks,” he added.

King said: “A ‘challenger bank’ like Suncorp could extend Bendigo and Adelaide Bank’s strategy as a regional, community-focused bank and, together with Macquarie Bank, can create significant competitive tension in the market, further undermining the co-ordinated conduct of the major banks.”

Suncorp has said it doesn’t want to deal with Bendigo because it doesn’t help its staff numbers, its funding issues nor its technology shortfalls.

Just how definitive these concerns will be if ANZ falls over remains to be seen, and having seen all the Suncorp board papers the ACCC clearly thinks Suncorp will see the world in a different light with no ANZ.

ACCC chair Gina Cass-Gottlieb. Illustration: Sturt Krygsman

ACCC chair Gina Cass-Gott­lieb was not involved in this matter because of past advice to Suncorp, but it is extraordinary how four former big business lawyers in Cass-Gottlieb, mergers boss Stephen Ridgeway, enforcement boss Liza Carver and Justice O’Bryan are all taking decidedly pro-consumer decisions.

Having been on the other side, they clearly don’t see big business as self-serving.

In the absence of public benefits, the ACCC can only authorise a merger if it is satisfied there is no lessening of competition.

If ANZ went the more conventional route, the onus would be on the ACCC to prove the deal was anti-competitive.

The difference is meaningful and in his statement ACCC acting chair Mick Keogh put it plainly.

“We are not satisfied that the acquisition is not likely to substantially lessen competition in the supply of home loans to Australian consumers,” Keogh said.

“We consider there is an increased likelihood of co-ordination between the four major banks in the supply of home loans should Suncorp Bank become part of ANZ.

“If this market was truly competitive, we would not expect to see banks publicly flagging plans to reduce the competitiveness of their offerings.

“If ANZ doesn’t acquire Suncorp Bank it will remain the smallest of the major banks, giving it a stronger incentive to disrupt any co-ordination in the market.”

Clayton Utz partner Michael Corrigan noted the ACCC decision was framed by past investigations into residential lending showing the concentrated banking market.

While mortgage brokers now initiate 70 per cent of new bank loans, the big four banks control 80 per cent of the market and are ultimately the ones that make ­decisions on loan rates and conditions.

The Competition Tribunal has 90 days to hear the matter, which means technically a decision could come this year but some lawyers doubt whether it will be heard so soon.

Quay Law’s David Poddar noted the first test for the tribunal was “whether the deal would not have the effect, or would not be likely to have the effect, of substantially lessening competition”.

“The second condition is that the tribunal is satisfied in all the circumstances that the conduct for which authorisation has been sought would result, or be likely to result, in a benefit to the public and the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct.”

Based on past matters where Justice O’Bryan has backed the ACCC, ANZ and Suncorp have their backs to the wall, which probably explains why ANZ’s lawyers declined to give the ACCC the three-week extension it wanted – they knew the writing was on the wall.

Future Fund jobs

This week’s appointment of Ben Samild as chief investment officer for the Future Fund clears one pending appointment but the government has more work to do with three of the six fund “guardians” to step down in the next few months, including chair Peter Costello.

While Jim Chalmers’ old boss Wayne Swan has been mentioned in dispatches, as noted previously a more logical choice lies between existing members Deborah Ralston and Patricia Cross.