Merged Bendigo-Suncorp bank could be a ‘more effective competitor’: ACCC

On Friday (4 August), it was confirmed that the Australian Competition and Consumer Commission (ACCC) had decided not to grant merger authorisation for ANZ Banking Group (ANZ) to acquire Suncorp Group’s banking arm.

The ACCC had said it was not satisfied that the proposed acquisition was not likely to substantially lessen competition (the test for granting authorisation) and had therefore denied authorisation.

“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,” said ACCC deputy chair Mick Keogh on Friday.

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

Bendigo and Adelaide Bank – which had been opposed to the deal after Suncorp reportedly snubbed its approaches in favour of the ANZ merger – welcomed the decision.

Chief executive and managing director Marnie Baker commented: “We believe this is a good outcome for competition, customers and the community.

“We note that in making its decision the ACCC said that non-major banks are both an important source of competitive pressure and a competitive threat to major banks.

“Bendigo and Adelaide Bank is proud to be an independent regional bank. We remain focused on our strategy and our purpose of feeding into the prosperity of our customers and their communities, not off them.”

The BEN/Suncorp counterfactual

Indeed, the ACCC had balanced its decision on the ANZ-Suncorp merger using a counterfactual scenario where Bendigo and Adelaide Bank and Suncorp Bank could merge (and several submissions to its consultation on the ANZ-Suncorp merger had focused on this scenario).

It outlined in its executive summary for its denial of the ANZ-Suncorp that a potential merger between Suncorp Bank and Bendigo and Adelaide Bank could be beneficial.

The summary revealed that Suncorp Group’s external consultants had considered a merger with Bendigo and Adelaide Bank but concluded that it would be “the second best option to the ANZ offer” as the major bank merger would “realise the largest financial benefits to its shareholders”.

The ACCC summary read: “Over the course of these reviews, strategic analysis repeatedly concluded that a regional bank merger with Bendigo and Adelaide Bank would be value accretive.

“Taking all the evidence into account, the ACCC considers that there is a realistic commercial likelihood that absent the Proposed Acquisition, Bendigo and Adelaide Bank would make an offer to acquire Suncorp Bank, and that such an offer would be considered and accepted by Suncorp Group following negotiations, with implementation likely taking a number of years.

“Relevant to the ACCC’s consideration of the competitive effects of the Proposed Acquisition, the ACCC’s view is that the Bendigo Merger Counterfactual would likely create a larger second-tier bank that would be better placed to grow its market share through increased competition and trigger a stronger competitive response from the major banks.”

Indeed, the ACCC suggested that this could occur if a combined Bendigo/Suncorp Bank pursued a different competitive strategy from the major banks (for example with different business models or targeting different niches in the competitive fringe), which would make it a more effective challenger firm than each currently is.

“This would alter the competitive dynamics because another disruptor in the market would reduce the ability and incentive of the major banks to engage in cooperative behaviour,” it continued.

“The ACCC considers that a combined Bendigo/Suncorp Bank would both strengthen and diversify the competitive fringe of challenger banks in a way that is likely to reduce the ability and incentive of the major banks to engage in coordination.

“On this basis, the ACCC considers that the likelihood or extent of coordinated effects arising from the Proposed Acquisition is likely to be even greater when assessed against this counterfactual.”

The ACCC also suggested a combined Bendigo/Suncorp Bank entity may be a more effective competitor than either bank when it comes to agribusiness banking markets in Queensland.

Bendigo and Adelaide Bank has not issued a statement on whether it will now seek to acquire Suncorp Bank.

[Related: ANZ-Suncorp merger denied]