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When ANZ Bank chief executive Shayne Elliott raised the possibility of buying Suncorp’s bank with his board, he didn’t take long to sell the merits of the deal.
When it unveiled the $4.9 billion bid this week, the biggest banking deal in Australia for more than a decade, Elliott said there was an early view from the board that the deal would align with bank strategy.
“There’s nobody sitting around the ANZ board table, or frankly in many places around the country, saying this doesn’t make sense for ANZ,” Mr Elliott said. “It makes a lot of sense. We’ve always said we wanted to strengthen our commercial and retail bank.”
Likewise, most analysts and investors this week have given its ambitious expansion a cautious note. If successful, ANZ will leap into third place in the competitive home loan market and expand into the fast-growing sunshine state.
But the proposed deal has others upset. It was met with fierce opposition from a range of regional banks and smaller players, who wonder what it means for competition in Australia’s banking sector and what benefits it will bring to consumers.
Several years after a wave of fintech companies promised to shake things up and increase competition, retail “neo-banks” have exited the market or been swallowed up by an established player.
The latest victim of digital banking, Volt, recently announced it will move hundreds of unclaimed accounts to big four lender National Australia Bank, several weeks after it closed due to struggles to raise capital.
And while some argue the ANZ deal will not have a substantial impact on competition, others are concerned about the signal it sends at a time when the big four banks hold a whopping 75 per cent of the loan market for at home
“It’s reducing competition”
When ANZ announced the proposed deal on Monday, it did not escape the wider market that Suncorp’s purchase of the bank would see the big lender regain lost ground.
ANZ’s share of the home loan market has been shrinking and the tie-up with Suncorp represented an opportunity to recoup years of losses.
ANZ chief executive Shayne Elliott says the tie-up will make the big lender more competitive. Credit: Peter Wallis
The deal comes as the industry is fiercely competing for market share in mortgage lending, scrambling to build and acquire the technology needed to gain an edge.
This week, while defending the deal, ANZ chairman Paul O’Sullivan said technological change was creating new rivals and banks needed scale to compete.
“As anyone watching will know, financial services is going through a huge revolution and change,” he said.
“We’re seeing disruption from a lot of non-traditional players… It’s increasingly becoming a technology arms race, and it’s important to have the ability and the appetite to invest heavily in new technologies. And that’s why this deal works so good on so many fronts.”
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The proposed purchase represents the biggest banking deal since the global financial crisis, when two major bank takeovers in Australia were given the green light: Westpac’s purchase of St George Bank and BankWest’s acquisition of CBA. At the time, ANZ was also in talks with Suncorp’s board to buy its bank, but the deal fell through when the Rudd government introduced a blanket deposit guarantee scheme.
Now, with an entirely different set of economic conditions, some are wondering what the ANZ-Suncorp deal means for competition in the already concentrated banking sector.
Warren Hogan, ANZ’s chief economist from 2005 to 2016, who is now an economic adviser to Judo Bank and managing director of EQ Economics, believes the ANZ-Suncorp deal will only hand more market share to the major banks .
“It’s reducing competition,” he said.
“There is no national financial imperative for this merger to happen, as we saw during the GFC.”
Although new players have entered the banking sector since 2018, after regulations were eased to allow for greater competition, high capital requirements have pushed neobanks to merge with larger players or exit the sector .
Xinja exited the industry in late 2020 and became the first Australian bank to return all customer deposits. In early 2021, National Australia Bank bought 86,400, and last month digital bank Volt announced it would close and return money to customers after failing to raise the capital needed to continue growing.
Around 400 former Volt customers will soon have their money moved to fee-free NAB transaction accounts as the neobank works with the regulator to get its license back.
Australia still has a long way to go when it comes to fintech disruption, Hogan says, but that doesn’t mean it isn’t still a threat to the banking oligopoly.
“The new competitive environment for banking, both here and abroad, enabled by technology, changing consumer behavior and the attitude of regulators and government towards banking competition policy, has a long way to go run,” he said.
“We’ve had some hiccups in the Australian market in recent years. But it’s still early days for how technology is reshaping the financial services landscape. And that’s why it’s so important that the government, I think, does it right.”
Others who have this week opposed the deal include regional banks Bendigo and Adelaide Bank and Queensland-based Heritage Bank, the Financial Services Union and the Finance Brokers Association, which said competition would be reduced by the takeover .
Size matters: Small banks face pressure to consolidate
The deal comes at a time when some bankers argue there are pressures for industry consolidation among smaller lenders (the four-pillar policy prevents any merger between the big four).
Bank of Queensland last year acquired ME Bank, formerly owned by industry superfunds, and there have been a number of mergers between client-owned banks.
Former Bendigo and Adelaide Bank chief executive Mike Hirst says the combination of tougher regulation and changing customer expectations has made it more important for banks to have scale.
That’s because being bigger allows a bank to spread the cost of complying with new regulations or upgrading technology, for example, among a larger number of customers.
“Scale is important to be able to deal with the amount of regulation and the pace of change,” says Hirst.
There has long been talk of the emergence of a so-called “fifth pillar” in banking that could gain this scale and compete more fiercely with the big four.
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Some now worry that ANZ’s planned purchase eliminates that possibility.
It also emerged this week that the most obvious regional candidate to merge with Suncorp, Bendigo, had made proposals to Suncorp about a tie-up. But sources said Suncorp did not commit to Bendigo as it favored ANZ, which was able to make an all-cash offer.
While Hirst does not directly express a view on whether ANZ’s purchase of Suncorp should be given the green light, he says the regulator should consider whether this deal removes the opportunity to create a fifth, larger competitor to the four big.
“These kinds of deals only reinforce the existing disadvantage that smaller banks have because they can’t get bigger quickly,” says Hirst.
There is also an argument that the economic environment Australia is entering will favor the power of the big four, due to their access to cheaper finance than their rivals.
While all banks’ margins should benefit from rising interest rates, Morningstar analyst Nathan Zaia says the big banks have the added advantage of having large pools of savings and accounts of low-cost transactions, while also being able to tap wholesale markets more cheaply.
“If a smaller bank is facing a lot more pressure on their costs than a larger bank, then it’s going to be harder for them to discount to win shares. So I think some of that competition from smaller banks could ease “, says Zaia.
“I don’t think it will change the competitive landscape”
The Australian Competition and Consumer Commission (ACCC), led by competition lawyer Gina Cass-Gottlieb, who began work this year, will look in depth at these competition issues.
Former competition czar Allan Fels, president of the ACCC from 1995 and 2003, said this week it would not be an easy decision for the new chair, and the outcome could give the public the simplistic view he favors or anti-banking
Elliott, in earlier briefings on Monday, was confident as he assured investors that they would get a “fair hearing” from the watchdog and that ANZ can make a strong case to convince the ACCC that the deal will benefit the consumers Others also believe the case is there to beat him.
“I don’t think it will change the competitive landscape,” says Jason Beddow, the chief executive of Argo Investments, which invests in the big four banks. “I don’t think it will change materially, especially in the next few years.”
“Suncorp is a simple bank, it’s quite difficult to say from an anti-competition perspective that it would lessen competition … I don’t see the ACCC stopping that.”
Beddow says the big four have been successful and made good returns lending to homebuyers and, after some “misdirections” in wealth and insurance, have now returned to mortgages as their core business.
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“I think it’s getting more and more competitive because they all came out of other jurisdictions, now it’s largely national banks. By wealth, without insurance, they’re really fighting for the core business which is mortgages.”
Dr Shumi Akhtar, associate professor of finance at the University of Sydney Business School, said that while competition in the banking sector in Australia is not as active compared to the international landscape, the merger, if successful, could provide to ANZ a technological advantage.
“The fact that the Australian banking industry…