ANZ admits failings in bank bid

By PAULA OLIVER

ANZ would breach Commerce Commission "safe harbour" thresholds in several banking markets if it bought the National Bank - but says it should be allowed to proceed anyway because of strong competition in the sector.

The admission of the breach is outlined in the 82-page public version of ANZ's application for clearance from the commission, released yesterday.

ANZ says the merged entity would fall outside the safe harbour guidelines in the mortgage market, the personal loan market, the small- and medium-sized business market, middle corporate market, the term deposit and savings market, and in credit card issuing.

But it describes New Zealand's banking sector as competitive and dynamic, and says there is little stopping other players from expanding or customers from switching banks.

ANZ is seen as a frontrunner to buy the National Bank.

The prized asset has attracted the interest of all the major Australian banks since British company Lloyds TSB put it up for sale.

ANZ was first to openly declare its interest and yesterday Westpac joined it in filing an application for clearance with the competition watchdog.

Others are expected to follow, possibly this week from the Commonwealth Bank of Australia and the National Bank of Australia.

HSBC is believed to be the only serious non-Australian contender for what could be a $6 billion to $7 billion deal.

The Australian suitors are likely to find the commission a hurdle because of the strength of their existing local presences.

The commission's guidelines first ask if a market is concentrated - that is, whether three firms have 70 per cent or more of the market.

If they do, then the merged entity must have no more than 20 per cent.

If it is not a concentrated market, the merged entity is allowed up to 40 per cent.

Massey University senior banking lecturer David Tripe said yesterday that on paper it seemed the Australian banks would all fall into the concentrated market grouping if they bought the National Bank.

That would mean they could not have more than 20 per cent of a market - a level they would all surpass easily.

But being outside the guidelines did not spell the end of the proposal, he said. The commission, after further investigation of competition in the sector, could still allow an acquisition.

Tripe said the question would be whether the banking market would remain so competitive if the National Bank disappeared.

"It is a highly competitive market now, but would it become a comfortably uncompetitive one? There may be less pressure on them to compete assiduously."

He said that if ANZ broke the guidelines, Westpac was clearly facing a big hurdle.

Some market observers expected the commission to eventually allow ANZ or CBA to make the purchase - possibly with divestment requirements - but said Westpac, in particular, could struggle.

Westpac and National Bank are the country's two largest operators.

A key part of the commission's determination will be how it chooses to define the markets in which the banks operate.

It could look at them geographically and in product terms.

ANZ argues in its application that the markets definition should be the same as what the Australian Competition and Consumer Commission has used in the past.

It also says the markets should be viewed nationally, rather than by regions.

Branches have become less important with the emergence of telecommunications and the internet, ANZ says.

It points to Kiwibank, rural operator Rabobank, and fledgling supermarket player Superbank as proof of healthy, growing competition.

ANZ says its competitors would react if it tried to lift lending rates or charges after the acquisition.

Another hurdle in the path of the suitors is the Reserve Bank of New Zealand, which has openly expressed concern at the prospect of all of the country's major banks being Australian-owned.

It is concerned about the ability of a bank to operate as a standalone business should its parent strike trouble.

The central bank gained new powers under a bill passed in Parliament last week, and it could now impose conditions on a bank buying the National Bank.