Tuesday, August 11, 2009

Let's divest BankWest, and St George

As official figures confirmed that Australia's banks have all but displaced other mortgage providers, a leading competition expert has told the Senate the competition regulator should take court action to force Commonwealth Bank to sell BankWest, and Westpac to sell St George.

Associate Professor Frank Zumbo, from the University of NSW, told the Senate economics committee that it was not too late for the Australian Competition and Consumer Commission to ask the Federal Court to order the sales.

He said the grounds were that each takeover had demonstrably lessened competition.

''In a very short space of time, just 18 months, we have lost two of the big banks' biggest competitors,'' he told the committee.

''The Commonwealth has taken out BankWest after previously taking stakes in Aussie Home Loans and Wizard, and Westpac has taken out St George, after previously taking over RAMS...

''The Commonwealth's share of the mortgage market alone and Westpac's share alone are now roughly equal to the share of the ANZ and NAB combined.

''My deepest concern is that there will be conversations or thought given to the ANZ and NAB merging.

''Yes, there's a four-pillars policy in place prohibiting further mergers, but it is only a policy.''

Professor Zumbo said the ACCC had a limited window of opportunity under section 81 of the Trade Practices Act to seek divestitures on the ground that it was a mistake to let the mergers through.

''I am not suggesting a fire sale. It could be orderly,'' he said. ''For example, BankWest could be listed as a separate venture and the CBA could pare back its shareholding over a period of time. I make it clear that such a divestiture would be premised on a finding by a court that there had been a substantial lessening of competition.

''I believe that if there was a finding that the merger had not substantially lessened competition, it would provide further evidence that the substantial lessening of competition test is too hard a test.

''Given the impact that the merger has had on the power of the CBA, on its pricing power, on its market power; when you take all those things into account, if a court allowed that merger, I would be very nervous from a public policy point of view about such a test.''

ACCC chairman Graeme Samuel was quoted recently as saying he regretted approving Commonwealth Bank's purchase of BankWest, saying Australia's banks now had ''workable competition but less than intense competition''.

ABS figures released yesterday showed the banks continuing to account for 92 per cent of all new mortgages, the highest proportion for decades.

Published in today's Age