ANZ-Suncorp decision will be a crucial moment for competition law

The Australian Competition and Consumer Commission (ACCC) has done the correct thing by Australian consumers and small businesses, plunging a knife into the proposed merger of ANZ and Suncorp’s banking arm.

If the Australian Competition Tribunal, to which the parties will inevitably appeal the decision, reverses the competition regulator, it will be a clear sign that — as former ACCC head Rod Sims maintains — our competition laws are too weak to give Australians the competition they deserve.

The merger was a classic demonstration of lazy Australian capitalism, with an underperforming ANZ looking to perpetuate the banking oligopoly tradition of gobbling up smaller banks, sacking workers, dumping brands and extending the big four’s dominance of the residential mortgage market. True, there was some acknowledgement of the political sensitivities of taking over a Queensland bank, with commitments made about jobs and branding, but it was a blatant reduction in competition in banking, at a time when the role of powerful incumbents in concentrated markets using inflation to boost profits, and curb wages, was becoming apparent.

The ACCC provided chapter and verse on how our concentrated banking sector is “an established oligopoly, in which the four major banks collectively hold 72% of banking system assets. It is among the most concentrated banking sectors in the world and has been for many years… It is also one of the most profitable banking sectors in the world… there is an ‘accommodative and synchronised approach to pricing’ between the major banks…”

Any periodic outbreaks of competition among the big four banks never lasts long. The most recent surge of competition in mortgage lending, for example, “appears to have been short-lived. Public comments from several bank CEOs have stated that these promotions were resulting in loans ‘being written below the cost of capital’ or were ‘value destroying’, and that they wanted to ‘step back’ or compete on aspects other than price. The market conditions were ‘atypical’. At the same time, the returns on equity for the major banks have increased since 2020.”

That is, bank CEOs themselves explained why allowing further reduction in competition was a bad idea. Well done, chaps.

But the ACCC doesn’t think the ANZ-Suncorp merger would directly, or “unilaterally”, reduce competition by an amount sufficient to reach competition law’s “substantial lessening of competition” threshold. What it worries about is that in mortgage, agribusiness and small business lending, the merger would increase the likelihood of “coordination” between the big four banks, which would all be more similar after the merger was completed. By coordination, the ACCC means “the major banks engaging, either expressly or tacitly, in a ‘live and let live’ style of conduct or pattern of behaviour to achieve ‘soft’ or ‘muted’ price or non-price competition sufficient to either maintain and/or protect their existing market shares and/or to not challenge the status quo.”

Its assessment of that “coordination” effect is where the ACCC’s decision will likely be vulnerable to appeal. But the “coordination effect” is very real and is crucial to competition law. Oligopolies understand competition law — they rarely seek a tie-up that would clearly reduce competition a lot. Instead, they chip away at it, gobbling up smaller competitors and start-ups, each single acquisition not reaching the “substantial lessening of competition” threshold, but the capacity for large incumbents to coordinate growing with each purchase.

The Reserve Bank isn’t responsible for competition in the banking industry — it merely takes into account the lack of competition when it makes interest rate decisions — but competition as an essential feature of the Australian economy, as well as a restraining influence on inflation that should be an area of concern and debate for the bank. It rarely is; it’s left to the ACCC to play a lone hand in trying to combat the big banks.

The ACCC bolsters its case by noting that Suncorp, in looking for a buyer for its bank, also considered selling it to Bendigo and Adelaide Bank, another mid-tier bank, rather than ANZ. “A regional bank merger with Bendigo and Adelaide Bank would be value accretive… 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.”

But the “Bendigo Merger Counterfactual” is not what the Australian Competition Tribunal will be considering. It will be examining the “coordination” effect. A win for ANZ will confirm that you can drive a truck through our competition laws — provided you drive it slow enough.