The competition watchdog has defended its decisions to approve mergers and acquisitions in the mortgage market, including the major banks’ acquisition of broker head groups.
In its submission to the Productivity Commission (PC), the Australian Competition and Consumer Commission (ACCC) defended its decision to allow vertically integrated acquisitions in the financial sector, noting that it was “satisfied” that such acquisitions “would not result in a substantial lessening of competition”, as required by the Competition and Consumer Act (CCA).
In its draft report and throughout its public hearings, the PC claimed that “clear conflicts of interest created by ownership” are “inherent” in the mortgage market, making particular reference to the Commonwealth Bank’s (CBA) acquisition of Aussie Home Loans.
The PC also alleged that lenders are wielding “significant influence” over aggregators and called for a “clear legal duty” to be imposed on aggregators and the brokers that fall under them.
In its submission, however, the ACCC outlined its justifications for allowing CBA, National Australia Bank (NAB) and Westpac to acquire third-party businesses in the mortgage market.
CBA’s acquisition of Aussie Home Loans
In relation to the CBA’s acquisition of the majority share in Aussie Home Loans in 2013, the ACCC noted that it did not oppose the acquisition on the basis that:
NAB’s acquisition of Challenger Financial Services Group
In 2009, NAB acquired mortgage management business Challenger Financial Services Group. During its review of the proposed acquisition, the ACCC found that:
Westpac’s acquisition of RAMS Home Loans
Further, in relation to Westpac’s acquisition of the RAMS Home Loans network in 2007, the ACCC noted:
Representatives from both the PC and the Bank of Queensland agreed that the lack of publicly available data has made it difficult to measure the actual impact aggregator ownership has had on the flow of mortgages in Australia, though Commissioner Harris has previously suggested that bank-owned aggregators control about 70 per cent of the mortgage broking market.
He added that in-house products or white label loans appear to “dominate disproportionately” the outcomes for borrowers who use bank-owned aggregators.
The PC chair noted that, in 2015, CBA had 21 per cent overall market share in the broker channel but a 37 per cent market share via Aussie Home Loans.
However, while it has concerns about vertically integrated groups, the PC said that forcing banks to divest of their broking businesses should be “a last resort”.
“Of course, if the necessary solutions prove commercially unpalatable, institutions themselves may then choose to divest,” Mr Harris said.
Many in the industry have spoken out against the Productivity Commission’s draft report, with some suggesting that the remuneration figures cited are “incorrect”; others stating that the recommendation to charge fees would be “anti-competitive”; and both broker associations calling out some findings of the report (which relied heavily on figures from CHOICE consumer group and UBS reports) as “limited”, “amateur” and — in some cases — “nonsense”.
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