Watchdogs Will Bark, May Bite, Over Banks

The Age

Tuesday May 13, 2008

Ari Sharp

WESTPAC may face a showdown with regulators over its attempt to merge with St George after the Australian Competition and Consumer Commission expressed concerns that the move might reduce competition in the banking sector.

The bid needs to win the approval of the ACCC, which, under section 50 of the Trade Practices Act, can block any merger that may lessen competition.

ACCC chairman Graeme Samuel said he had assembled a team to assess the merger and he expected it to take two to three months to reach a decision.

"It will be subject to a proper rigorous analysis, consulting with all relevant stakeholders and undertaking market inquiries, as would be expected," he said.

Soon after the bid was made public yesterday morning, Mr Samuel spoke to Westpac chief executive Gail Kelly and St George chief executive Paul Fegan but refused to give any indication of the ACCC's initial view.

As well as competition issues, the merger must win the approval of federal Treasurer Wayne Swan under the Financial Sector (Shareholdings) Act. The Treasurer will be advised on the merger by the Australian Prudential Regulation Authority, which will consider the effects in areas such as capital, liquidity and skills on St George's depositors.

Mr Swan was yesterday tight-lipped on the merger, saying only that several regulatory hurdles would need to be passed. "It's not appropriate to comment further at this stage," he said.

In an apparent attempt to head off concerns over the merger, Westpac said the existing St George brands, including Bank SA, would be retained and there would be no net reduction in the number of branches or automatic teller machines.

Australia's four biggest banks - Westpac, along with NAB, ANZ and Commonwealth Bank - are prevented from merging under the Federal Government's long-standing four pillars policy.

Consumer advocate Choice said the banking sector needed more competition, not less. As signs of a lack of competitive pressure, it cited penalty fees for late payments on credit cards, direct debit defaults, and exit fees from mortgage products.

"Competition is enhanced by having more players in the market, not fewer," said spokesman Christopher Zinn.

The ACCC's assessment of the offer will be complicated by the fact that the competition regulator will need to assess the several different markets in which the banks compete, as well as the market in different parts of Australia.

"That's going to be interesting because, is the relevant market banking, is it some form of financial services?" asked University of Melbourne senior lecturer in competition policy Rhonda Smith. "Changes have taken place in the banking sector that may mean you want to consider it more broadly than you have in the past."

Pattersons Securities banking analyst Mark Topy said competition concerns were less likely in the home-loan market, where the merged entity would have a 25% market share, because of the number of competitors. But competition concerns could arise in the area of financial planning platforms, where Westpac's BT Wrap and St George's Asgard between them have a 22% market share, with a limited number of competitors.

"The concentration on the platform side would be more likely to be a regulatory issue," Mr Topy said.

Mr Samuel said there would be an opportunity for public submissions as part of the ACCC's consultation, which may spark a repeat of the events surrounding Westpac's takeover of Bank of Melbourne in 1997, when a public campaign was launched to pressure the regulator to reject the bank's bid for what was then a leading regional bank.

© 2008 The Age

Back to News Index | Back to Home