Call for the break-up of ANZ and ASB

Friday, 8 September 2023

Anti-monopoly campaigner Tex Edwards has called on the Commerce Commission to “be brave” and recommend the Government breaks up ANZ and ASB to improve competition in the banking market.

In a submission to the competition watchdog’s market study into the banking industry, the 2degrees founder claimed the “average Kiwi household” would lose out between $450,000 and $1m over their lifetimes because of excess margins paid to the Australian-owned banks.

“Failed legislation in the 1980s and early ‘90s caused New Zealand savings banks to be sold for virtually nothing to Aussies. The results are haunting Kiwi regulators 30 years later,” he said.

That policy failure had been turbocharged by the “Kiwi disease” of allowing mergers that restrict competition, such as ANZ’s takeover of National Bank in 2003, he said.

ANZ and ASB should be split in two, with half of each bank sold to “new owners who would deliver benefits to consumers”, he said.

Edwards singled out ASB alongside ANZ because of its “dominance in Auckland” and absolute level of profitability.

“Opening banking” initiatives that made it easier for people to switch between banks were just talk, he said.

“Without a transformational catalyst and real challenger banks, New Zealand will be stuck in the 1990s.”

In June, the Government ordered the Commerce Commission to conduct a market study into the state of competition in the retail banking market.

The decision followed longstanding gripes about the size of bank profits and a campaign by Edwards, who in February published his own plan setting out how he thought the inquiry should be conducted.

The commission said in an issues paper in August that “indications of persistently high profitability” in the banking industry raised questions about the intensity of competition.

Edwards’ submission was filed under the banner of Monopoly Watch NZ, where Edwards described himself as a worker.

Its claim that the average household was losing upwards of about $450,000 from poor competition was based on an assessment that the difference between the interest rates at which banks lent money and deposit rates was about 150 basis points higher than “best practice” in Denmark, he said.

Monopoly Watch then assumed families would get at least a 5% return from instead investing those claimed excess payments in KiwiSaver.

Reducing interest-rate margins by 150 basis points would be “ambitious but not silly”, Edwards said.

People who doubted the thrust of Monopoly Watch’s claims should look at what investors thought of the big banks, he said.

He pointed to a report by credit ratings agency Standard & Poor’s that described the New Zealand banking industry as an “oligopoly dominated by four large banks” and ANZ, specifically, as having “a reasonable degree of pricing power”.

“Don’t listen to me, listen to the analysts. You’ve got these third-party verifications,” he said.

ANZ responded that New Zealand had “a highly competitive market for personal banking services with banks and service providers of all sizes and ownership structures, including a government-owned bank”.

Banking Association chief executive Roger Beaumont said it wanted to respect the commission’s market study process and didn’t intend to comment on others’ submissions.

Edwards was credited with breaking up Spark and One NZ’s duopoly in the mobile market in 2009 after taking them by surprise and successfully founding 2degrees, before selling his stake in the firm in 2016.

The maverick entrepreneur-turned-campaigner has also been outspoken in his pursuit of competition reforms in the supermarket and building materials industries.

He called in his banking submission for the board of Consumer NZ, the Productivity Commission and Transparency International to resign, saying they had failed to engage in serious debate about structural reforms.

Regulators and politicians alike have frequently appeared to struggle to assess the merits of Edwards’ contribution to policy debates.

However, his influence appears to have gradually grown, rather than declined over time, without his proposed competition remedies being fully taken to heart so far.

Building materials Minister Megan Woods last year appointed Edwards to her 10-person Critical Materials Taskforce, established to trouble-shoot shortages in the building materials industry, in an apparent sign of the depth of her frustration with shortages of Gib board in the country.

Commerce Commission chairperson John Small said in July that Edwards had been a helpful voice in market studies, comparing his contributions to those made by the Telecommunications Users Association in the telecommunications industry when that was undergoing reforms.

Small appeared to express sympathy then with Edwards’ view that the Productivity Commission and others should be more engaged with the Commerce Commission’s work, saying it could do with “a lot more engagement in the market studies across the board”.

He also described consumer representation as “sort of a missing area that is really underdone in New Zealand”.

The Commerce Commission is expected to itself publish the submissions it received in response to its issues paper in the next week or two.

A commission spokesperson said there was no convention dissuading organisations from releasing their own submissions at a time of their choosing.