Larry Schlesinger | 15 January 2013

Commonwealth Bank deal to buy Aussie Home Loans to face industry scrutiny

Mortgage brokers, banks and other lenders will have the opportunity to comment on the impact of the Commonwealth Bank’s proposed acquisition of John Symond’s Aussie Home Loans on competition in the industry as part of an ACCC review of the deal.

Industry participants have until January 31 to provide their thoughts and inputs with the ACCC to announce its findings on March 7.

The Competition and Consumer Act prohibits mergers and acquisitions that “substantially lessen competition in a market, or are likely to do so”.

Of chief interest and concern for the ACCC will be the impact of the acquisition on the Commonwealth Bank’s ability to sell a greater number of its home loans through Aussie’s mortgage brokers and retail shops and its ability to limit the number of loans that its competitors (particularly other major banks) can distribute via Aussie brokers.

Aussie distributes loans through 18 different lenders and while both John Symond and the Commonwealth Bank have stressed that Aussie will continue to operate as a standalone business, mortgage broking competitors and lenders may hold a different view.

Specifically, the ACCC is seeking to hear whether the “proposed acquisition will result in CBA having the ability and incentive to use its position to originate a larger share of home loans through AHL’s mortgage broker platforms post-acquisition and whether they consider the proposed acquisition will result in “CBA having the ability and incentive to foreclose its banking competitors from accessing its mortgage distribution services”.

The competition watchdog is also seeking comment on the impact the acquisition will have on Aussie’s ability to provide effective competition in the market, what impact it will have on the prices and profit margins it earns

The deal would see the Commonwealth Bank up its stake in Aussie from the current 33% to 80% with the option to acquire the remaining 20% further down the track.

The Commonwealth Bank is Australia’s largest home loan lender with an owner-occupier mortgage book of around $215 billion.

Apart from its current one-third ownership of Aussie, the Commonwealth Bank also owns mortgage broker Finconnect, which provides services mainly to accounting firms and other professionals.

Aussie operates one of the largest mortgage broking networks in Australia with 363 brokers across 139 retail store fronts as well as 384 mobile brokers that operate as independent contractors under the Aussie brand.

In addition, Aussie owns National Mortgage Brokers (nMB) an aggregator with a 165 mortgage brokers operating nationally.

Given the Commonwealth Bank’s ownership of Finconnect, the ACCC also intends to examine the “market for the supply mortgage distribution services, which includes providing mortgage brokers with access to a panel of lenders, technology and administrative support, education and training and marketing assistance”.

It also seeking comment “on the degree of competition that currently exists between  Finconnect and Aussie in the provision of mortgage distribution services”.

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