The global economic crisis has prompted the competition watchdog to give approval to the Commonwealth Bank of Australia's $2.1 billion acquisition of BankWest and St Andrew's Australia from troubled UK-based parent HBOS plc.
The global economic crisis has prompted the competition watchdog to give approval to the Commonwealth Bank of Australia's $2.1 billion acquisition of BankWest and St Andrew's Australia from troubled UK-based parent HBOS plc.
The Australian Competition and Consumer Commission said after giving considerable thought to various scenarios in relation to BankWest's expansion plans in the current economic climate, CBA's acquisition is unlikely to lessen competition.
Prior to CBA announcing its acquisition, BankWest was in the process of expanding its presence on the east coast through a major branch roll out.
However due to the current economic conditions, the ACCC said it had received evidence during its investigation showing expansion plans were to be "significantly" scaled back due to funding difficulties experienced by HBOS.
The ACCC also concluded that alternative buyers for BankWest and wealth management business St Andrews were unlikely due to the current financial crisis.
However it added that should another buyer come forward, it was "highly unlikely" the buyer would choose to invest the capital necessary with its expansion plans.
"In the absence of the global financial crisis, and the funding difficulties faced by BankWest's overseas parent company, the ACCC's conclusion may well have been different," ACCC chairman Graeme Samuel said.
Meantime Mr Samuel warned that the approval for the BankWest acquisition should not be viewed as a green light for the big four banks to acquire other regional banks.
"The ACCC's views regarding the likely competitive effect of this proposed acquisition are specific to the circumstances of this acquisition," he said.
"In particular, the financial situation of BankWest's UK parent, and the associated changes it is likely to make to BankWest's operating model in the absence of the transaction, have strongly informed the ACCC's conclusions.
"The ACCC will closely analyse the competition implications of any further proposed acquisitions of regional banks."
The sale of BankWest still needs approval from Federal Treasurer Wayne Swan before it can proceed.
The ACCC announcement is pasted below:
The Australian Competition and Consumer Commission will not oppose the proposed acquisition of BankWest and St Andrew's by the Commonwealth Bank, after concluding that the acquisition is unlikely to substantially lessen competition under section 50 of the Trade Practices Act 1974 in the markets in which they compete, ACCC Chairman, Mr Graeme Samuel, said today.
"Prior to the global financial crisis, BankWest, a subsidiary of the United Kingdom bank HBOS, was a keen competitor in the marketplace, but international events have overtaken the Australian operation," Mr Samuel said.
Until recently, the bank was in the process of significantly expanding its presence from its home state of Western Australia into the eastern states through a major branch roll out. As part of its expansion strategy, BankWest had aggressively targeted growth in its market share, including offering market leading prices for transaction accounts, home loans and saving/term products. It has also been particularly innovative both in terms of its product offering and its service model.
However, the ACCC received evidence that BankWest's expansion plans were to be significantly scaled back, as a result of the funding difficulties experienced by its UK parent company, HBOS.
"The ACCC has formed the view that BankWest would be unlikely to continue to act as the aggressive competitor it was previously," Mr Samuel said.
The ACCC considered information provided by BankWest that its aggressive pricing was driven by its east coast expansion strategy and therefore would not continue because of the cessation of these plans.
The ACCC also examined whether alternative buyers for BankWest would be likely to continue with BankWest's expansion strategy and aggressive price competition. Any buyer would need to be in a position not only to raise the purchase price but to repay the approximately $16 billion in intra-group loans from HBOS.
Following inquiries with financial regulators, BankWest's parent company, Australian and overseas banks and other consortia which may have had an interest in acquiring BankWest, the ACCC concluded that an alternative buyer was unlikely in the current funding environment. The ACCC also concluded that, even if another buyer were in a position to acquire the business, it was highly unlikely that they would choose to invest the capital necessary to continue with its expansion plans.
The Australian Prudential Regulatory Authority and the Reserve Bank of Australia have provided information to the ACCC's review that supports the conclusion that BankWest would not continue to be in the same position to provide strong competition going forward.
With BankWest no longer capable of the effective and vigorous competition that it has provided in retail banking markets, the ACCC considered that the acquisition was unlikely to substantially lessen competition compared to the likely future state of competition if the acquisition did not proceed.
"In the absence of the global financial crisis, and the funding difficulties faced by BankWest's overseas parent company, the ACCC's conclusion may well have been different," Mr Samuel said.
"The decision today by the ACCC should not be viewed as a green light to the acquisition of other regional banks by the big four," Mr Samuel added. "The ACCC's views regarding the likely competitive effect of this proposed acquisition are specific to the circumstances of this acquisition. In particular, the financial situation of BankWest's UK parent, and the associated changes it is likely to make to BankWest's operating model in the absence of the transaction, have strongly informed the ACCC's conclusions. The ACCC will closely analyse the competition implications of any further proposed acquisitions of regional banks."
The basis upon which the ACCC has reached its decision will be outlined in a Public Competition Assessment, which will be available shortly on the ACCC's website.
