Competition watchdog knocks back ANZ's $4.9 billion takeover of Suncorp Bank

Suncorp Group's (ASX: SUN) plans to offload its banking arm to ANZ (ASX: ANZ) for $4.9 billion have been foiled today after the Australian Competition and Consumer Commission (ACCC) rejected the proposal, noting it would likely lead to "customers getting a worse deal" in Queensland.

The sale agreement was announced in July 2022 as part of Suncorp's simplification strategy, and in June this year the group got the Queensland Government on side with a $25 million jobs and investment package, including at least $19 million for a Disaster Response Centre of Excellence in Brisbane and a commitment to hire 120 people at a new regional hub in Townsville.

But these efforts have proven in vain for getting the transaction over the line, with the competition watchdog concluding it would further entrench an oligopoly market structure that is concentrated with the four major banks dominating, while limiting options for second-tier banks to combine and strengthen to challenge the Big Four.

"We are not satisfied that the acquisition is not likely to substantially lessen competition in the supply of home loans nationally, small to medium enterprise banking in Queensland, and agribusiness banking in Queensland,” ACCC Deputy Chair Mick Keogh says.

"These banking markets are critical for many homeowners and for Queensland businesses and farmers in particular. Competition being lessened in these markets will lead to customers getting a worse deal.

"Second-tier banks such as Suncorp Bank are important competitors against the major banks, especially because barriers to new entry at scale into banking are very high. Evidence we obtained strongly indicates that the major banks consider the second-tier banks to be a competitive threat."

Suncorp Group chairman Christine McLoughlin says the group is surprised and disappointed with the determination, and would fully support ANZ in the next steps with a referral of the decision to the Australian Competition Tribunal - an avenue that the larger bank looks set to take as it seeks an independent review. 

"When we embarked on this transaction, we were of the firm belief it was in the best interests of our customers, shareholders and employees and that it would provide a net benefit to the Australian economy," McLoughlin says.

"Together with external economic and industry experts, we determined that this deal would not adversely impact the competitive dynamics in the markets in which we operate.

"There is nothing we’ve seen throughout the ACCC process that has caused us to change our view on these matters and we believe the Tribunal will accept the merits of our case."

ANZ chief executive officer Shayne Elliott says the group is "naturally disappointed" and disagrees with the ACCC's decision.

"We believe the acquisition will improve competition, which will benefit Australian consumers, particularly in Queensland. All of the relevant markets are intensely competitive and will continue to be intensely competitive after the acquisition," Elliott says.

"Indeed, the acquisition will create a combined bank which is better equipped to respond to competitive pressures, and deliver significant public benefits, particularly in Queensland."

The regulator highlights the supply of small to medium enterprise banking services in Queensland is already concentrated, and a merger of the two companies would "significantly increase ANZ's market share".

"We are not satisfied there would not be a likely substantial lessening of competition in small to medium-sized business banking in Queensland," Keogh said.

"Suncorp Bank is an important competitor for business customers in Queensland. It offers a differentiated product with a strong focus on customer relationships and smaller businesses. 

"That differentiated offer, and the competitive benefits it brings for Queensland businesses, will not be available if ANZ acquires Suncorp Bank."

The ACCC also determined the combination of the two banks would increase the likelihood of coordination in the Australian home loans market.

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

"We consider there is an increased likelihood of coordination between the four major banks in the supply of home loans should Suncorp Bank become part of ANZ. Coordinated market outcomes mean competition is muted at best, to the detriment of customers.

"A substantial lessening of competition in home loans would have major flow-on impacts to Australians with a mortgage. More than a third of Australian households have a mortgage, with loans totalling around two trillion dollars, illustrating how critical it is that competition in this market is not substantially lessened."

He says a lessening of competition would increase the chances of banks adopting a 'live and let live' approach to each other, aimed at maintaining or protecting their existing market shares.

"This is instead of competing strongly on price, innovation and the quality of their service and products to win customers," Keogh notes.

The ACCC considers the Australian home loans market is already at risk of coordination between the major banks for a number of reasons, including banks’ ability to price signal, the similarities of the major banks in terms of size and structure, the stability of the existing market structure and high barriers to entry.

“While there is evidence of increased competition in the home loans market recently, including in the form of cash-back offers to consumers, we are not persuaded that this level of competition will continue,” Keogh said.

"We note recent commentary by bank chief executives that they are stepping back from aggressive promotions. If this market was truly competitive, we would not expect to see banks publicly flagging plans to reduce the competitiveness of their offerings."

The acquisition of Suncorp Bank would boost ANZ’s market share in home loans to be above NAB, and closer to the Commonwealth Bank and Westpac. The regulator concludes that increased symmetry between competitors can increase the likelihood of coordination, as there is less incentive to upset the status quo and try to win market share by aggressively competing for customers.

"If ANZ doesn’t acquire Suncorp Bank it will remain the smallest of the major banks, giving it a stronger incentive to disrupt any coordination in the market," Keogh says.

"The acquisition by ANZ would also remove the potential for a Bendigo and Adelaide Bank deal with Suncorp Bank. That potential combination would likely strengthen and diversify the competitive power of second-tier banks, reducing the likelihood of coordination."

If ANZ does not acquire Suncorp, the ACCC believes there are two potential scenarios that could play out, that Suncorp Bank largely continues as it is now or that it merges with or is acquired by a second-tier bank, specifically Bendigo and Adelaide Bank.

“Suncorp Group’s own documents show that these were the two options that it considered as alternatives to the proposed sale of its banking arm to ANZ," Keogh says.

"Whether or not Suncorp Bank would combine with Bendigo and Adelaide Bank if the ANZ transaction does not go ahead was keenly contested by a range of stakeholders during the ACCC’s assessment.

"The ACCC assessed the issue of a potential Suncorp Bank deal with Bendigo and Adelaide Bank very closely, and considered many witness statements, expert reports and internal emails and documents and questioned bank executives under oath.

"While we are not saying such a merger between Suncorp Bank and Bendigo and Adelaide Bank will definitely occur if the ANZ deal does not proceed, we consider it is sufficiently likely that it is necessary to consider this scenario as part of the ACCC’s assessment."