Australia's competition regulator on Friday blocked a A$4.9 billion ($3.2 billion) buyout planned by No.4 bank ANZ Group (ANZ.AX) of insurer Suncorp's (SUN.AX) banking arm, setting the scene for a drawn-out legal challenge.
The Australian Competition and Consumer Commission (ACCC) said it was concerned a tie-up between the financial firms would worsen competition and "further entrench an oligopoly market structure" where four lenders including ANZ have three quarters of the country's A$2 trillion in home loans.
"The proposed acquisition increases the likelihood that the major banks adopt a 'live and let live' approach to each other ... instead of competing strongly on price, innovation and the quality of their service," ACCC Deputy Chair Mick Keogh said in a statement on Friday.
"A substantial lessening of competition in home loans would have major flow-on impacts to Australians with a mortgage," he added.
The decision leaves Melbourne-based ANZ, which has trailed behind its larger rivals in the cutthroat mortgage market for years, without a straightforward path to growing its loan book at a time when banks are struggling to attract new borrowers after 400 basis points of interest rate hikes in a year.
It also leaves Suncorp, one of Australia's biggest general insurers, without an avenue for simplification as extreme weather events put pressure on its core business.
The financial firms said in separate statements that they were disappointed and disagreed with the decision. The companies said they would seek a review of the determination at the Australian Competition Tribunal, an offshoot of the federal court which oversees takeover rulings.
ANZ shares rose 1.4% and Suncorp shares dipped 0.8% in morning trading, against a flat overall market (.AXJO) as analysts noted the sale had not been priced into most forecasts and tipped that the deal would ultimately go ahead.
"The market is likely to see today's verdict as a disappointment (but) we would view any significant sell-off as an enhanced buying opportunity given prospects for margin expansion and the potential for this to merely act as a delay," Citi analysts said in a client note.
The deal also needs sign-off from Treasurer Jim Chalmers who declined to comment.
($1 = 1.5249 Australian dollars)
