ANZ’s blockbuster bid for rival bank to go down to the wire

In essence, ANZ maintains that the idea that banking is full of lazy oligopolists has become outdated in the past decade, as the mortgage market has been shaken up by technology and new competitors.

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The bank would say that, of course. But it has data to support its claims – and the regulators will ultimately need to look at facts on the ground.

The bank’s most convincing argument is that the $2.1 trillion home loan market has changed a lot in the past decade, thanks to the rise of Macquarie Group as the country’s fifth-largest home lender.

ANZ boss Shayne Elliott pointed out in May that Macquarie had gone from being a bank with less than 0.5 per cent of the home loan market a decade ago to about 5 per cent today. ANZ, on the other hand, has slipped from 16 per cent to about 13 per cent in the past five years.

While better known for investment banking, Macquarie has been an irritant to the majors by undercutting its bigger rivals on price, and by approving loans more quickly.

In business banking, specialist lender Judo Bank has also been able to build a $9 billion loan portfolio since getting a banking licence in 2019.

While start-up neobanks have failed in the past few years, the growth of Macquarie and Judo are signs of competition from new sources. Another is the declining profitability from home loans – driven in part by Macquarie’s aggressive expansion. Earlier this year, bankers were wringing their hands that returns from mortgages had been competed to such low levels that returns were below their cost of capital (the returns shareholders expect).

Return on equity – a key measure of profitability – has dipped significantly among banks since the 2008 global financial crisis. Net interest margins, which measure the difference between what banks charge for their loans and how much they’re paying savers for deposits, have also been in long-term decline.

Now, the ACCC won’t be feeling sorry for the banks about this and neither should we. But the trends of falling margins and shifting market share might give the commission pause for thought as it weighs up ANZ’s plea.

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Against that, however, the watchdog is mulling scenarios where someone other than ANZ buys Suncorp’s bank, which has 2.4 per cent of the home loan market.

Bendigo and Adelaide Bank has made it clear it would like to merge and form a “fifth pillar” regional lender, even if Suncorp insists it doesn’t want to merge its bank with Bendigo. The ACCC would no doubt prefer a regional bank tie-up to a big four buyout, even if some in the market complain about the regulator trying to play corporate matchmaker.

The ACCC is also likely to reflect on the impact of allowing Westpac to buy St George in 2008, a rescue deal that was allowed in a crisis, but which dampened competition by removing a key rival to the big four.

And for all the banks’ talk about stiff competition lately, there are signs that it has recently come off the boil, with several major banks recently deciding to stop paying cashbacks as returns were crunched.

Ultimately, the watchdog is grappling with two very different pictures. Is banking in this country a cozy oligopoly, or a market that’s changing fast and open to disruption?

If it blocks ANZ’s move, the bank is almost certain to challenge the decision at the competition tribunal, so expect to hear more about the topic whichever way the ACCC jumps.

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