Why the $4.9 billion ANZ takeover of Suncorp is a test for both the government and ACCC

ANZ’s mooted acquisition of the banking arm of Queensland financial group Suncorp is typical lazy Australian capitalism.

Compared with its big four rivals, ANZ has failed to exploit the massive boom in home lending since the start of the pandemic. Its share of residential mortgage lending for owner-occupiers and investors has fallen to about 13% — about half that of market leader Commonwealth Bank. For several quarters, its management has insisted its mortgage division would eventually lift its game.

Part of those efforts have been directed at defending its useless app, ANZ Plus, the failures of which Joe Aston at The Australian Financial Review has tracked in amusing detail, to the fury of CEO Shayne Elliott.

Now, in the great tradition of Australian business management, Elliott wants to acquire Suncorp’s banking arm, which would instantly add about $60 billion of customer loans to ANZ’s balance sheet, 80% of which are mortgages, mostly in Queensland, where ANZ has limited exposure.

It would be the biggest M&A deal in Australian banking since the financial crisis. In 2008, Westpac bought St George for about $18.6 billion and the Commonwealth Bank acquired Bankwest for a cheap-as-chips $2.1 billion (and a lot of headaches with customers).

As a result, ANZ has swiped left on its planned hook-up with MYOB (the accounting software giant is so last week). According to this morning’s ANZ announcement, Suncorp will cost $4.9 billion and ANZ will raise about $3.5 billion to help pay for it.

ANZ wanted to join the M&A party during the financial crisis when what used to be called Suncorp-Metway had trouble with bad debts in its bank and was still swallowing its big $7.9 billion insurance buy, Promina, which owned AAMI and several other brands. But the federal government’s deposit insurance scheme and three-year guarantee of bank debt helped steady the ship and the ANZ move — a little over $3 billion for the Metway Bank and wealth management businesses — was rejected.

From a competition point of view, the new proposal stinks. While the big four are banned from merging with each other, they used the financial crisis to gobble up smaller rivals, and if ANZ is successful with Suncorp, NAB would be tempted to try to grab Bendigo Bank, and Westpac would sniff around AMP Bank (though AMP now says its bank is a core business).

Australia’s banking oligopoly would worsen materially, with a reduction in competition leading to fatter profit margins, more buybacks and higher dividends and profits.

The Australian economy is already dominated by oligopolies across numerous sectors, and the dearth of competition means higher prices for other businesses, poorer services and higher prices for households, and poorer wage outcomes for workers. And the less competition and the more dominant big companies are, the less likely they are to invest in innovation. Instead they prefer to reward shareholders with dividends and buybacks.

For a while the shonks, spivs and spruikers insisted neobanks, fintech, “gamechanging” crypto and buy now pay later (BNPL) would disrupt the big four’s dominance. But BNPL companies — aka traditional consumer finance done badly — are dying. Of the four neobank licences issued in 2019, three have gone. As for the smoking ruin of crypto, the less said the better.

If ANZ is allowed to buy Suncorp’s bank, it will quietly, over time, close branches to reduce duplication and continue closing its own, hitting more marginal communities in rural and regional areas where face-to-face banking remains important for local businesses and the agricultural sector.

The ACCC will have to assess and approve the acquisition and it presents a major test for former Murdoch minion Gina Cass-Gottlieb. The problem for the ACCC is that the broad test it uses — “substantial lessening of competition” — may not apply, but this is just the latest of a long-term pattern of “creeping” acquisitions across a number of banks that have substantially lessened competition collectively, not individually.

Treasurer Jim Chalmers — a Queenslander — will have to sign off on the deal. There’s no financial crisis this time to justify the approval, as there was when Westpac bought St George and the Commonwealth gobbled up Bankwest and then treasurer Wayne Swan, Chalmers’ boss, signed off on the deals rather than watch the smaller banks go under. Chalmers should nix the deal if the ACCC hasn’t found a way.

This article was first published by Crikey.