Talks between Arion Bank and Kvika Bank on a possible merger were halted without a formal decision from the Competition Authority. This was revealed in an interview with Páll Gunnar Pálsson, Director of the Competition Authority, on the programme. The main points on Radio 1 today.
Páll Gunnar reported that the Competition Authority had not issued a formal notice regarding the merger, as the matter had not reached that stage. Therefore, no formal decision had been taken before the banks themselves terminated the talks. „It is important to stress that this was not a formal merger investigation as is usually the case, where companies notify a merger and the matter then proceeds to a formal process,“ he said.
He also explained that the Competition Authority offers merger parties pre-notification discussions in the run-up to merger notifications and that such discussions are confidential. Their aim is to better prepare mergers and facilitate the Authority's review. „In this case [the pre-notification discussions between Arion Bank and Kviku Bank], the banks requested more detailed discussions about the Competition Authority's preliminary assessment of this potential merger and what would be required for it to proceed.“
According to Páll Gunnar, the supervisory authority agreed to such discussions and undertook extensive data collection. „We had detailed discussions with the banks, but this never developed into a formal investigation. In the same way that the banks requested these discussions, they also brought them to an end. The banks“ announcements to the Stock Exchange indicate that they assessed the merger would not be approved."
In the case of Páll Gunnar, it was stated that such an assessment considers the effect of mergers on competition. „In such cases, the assessment is, of course, of the effect a merger like this has on competition. What was at stake was that one of the three major banks intended to take over their most prominent challenger – Kvika,“ explains Páll Gunnar.
He said that Kvika bank had the stated policy of competing with larger banks, among other things with new methods and terms. The discussions also centred on the impact it would have for consumers if such a competitor were to disappear from the market. „Of course, the discussions were about what impact it would have if such a party were to disappear from the market and what might possibly replace it.“
Asked about the reasons why the merger did not go ahead, Páll Gunnar said that no formal conclusion had been reached by the regulator; rather, it was the banks' own assessment that the merger would not proceed, as previously stated.
„And because this was not a formal investigation, there will not be a formal decision either. The discussions are also subject to certain commercial confidentiality which we will have to review with the banks and assess what we can actually publish. But I can say that the challenge, as was known from the outset, was to assess what impact the merger would have and then what would happen if an important, small competitor like Kvika were to disappear from the market. The banks“ conclusion shows that the Competition Authority was concerned about this merger and the investigation revealed that there would have been a considerable degree of concentration in certain areas such as car and equipment loans, in the equity and bond markets, in foreign exchange brokerage and more, but not least because Kvika has this stated aim of competing with the big banks, providing them with competitive pressure, and for that reason the banks knew in advance that it would be a challenge to get approval for such a player to disappear from the market."
Páll Gunnar noted that the Competition Authority had, in previous rulings, pointed out that the three major banks were very similar and sometimes in a position to coordinate their behaviour. However, due to competition, they have recently had to make adjustments. „The banks“ cost ratios have fallen, becoming comparable to, and even better than, those in some neighbouring countries.„ Therefore, significant efficiencies have been achieved. “But the customers of the banks in Iceland, individuals and small and medium-sized enterprises who have nowhere else to turn, are of the opinion that the banks can do much better in offering better terms and better service. That is what this discussion is about."
Páll Gunnar spoke generally about the so-called efficiency defence in merger cases. „Generally speaking, in merger cases, companies can rely on what is known in competition law as the so-called efficiency defence, i.e. that a merger which might otherwise harm competition is an important and effective way of achieving efficiencies. For the Competition Authority to accept such an argument, it must be demonstrated that the efficiencies are real, that the merger is a necessary prerequisite for the efficiencies, and also that consumers or customers will enjoy the benefits of the efficiencies. It is relatively rare for companies to rely on this defence, and even rarer for them to succeed in proving it. It is obvious that in the vast majority of cases, consumers benefit from competition, and the better and more intense it is, the better it is for customers.“
Asked about competition in the financial market and the impact of potential mergers, Páll Gunnar said that such matters must always be assessed in the context of the circumstances at the time and with the interests of consumers as a guiding principle. He emphasised that competition is crucial for the public and for businesses.
„It is not possible to answer this question in such a way that no mergers are considered for the future. When we went through the crash [the economic crash in the autumn of 2008], an entire savings bank system disappeared here and was absorbed into the big banks. The Competition Authority approved such mergers in many cases, so situations could arise that are different from today.
Finally, Páll Gunnar was asked about the competitive conditions in the financial market and what concerns the Competition Authority has about its development, as the market largely concerns the public interest.
„What can be said is that there are huge benefits for Icelandic society in having competition in the financial market. As long as services for small and medium-sized enterprises and for individuals are largely tied to the Icelandic banks, we must ensure that there is as active a competition as possible among them. For this to happen, we must at the same time reduce barriers to entry, make it easier for consumers to enjoy the best terms, and ensure that there can be challengers in the market, such as Kvika has been, with that as its stated objective.“
You can listen to the interview with Pál Gunnar Pálsson in the programme. The main points here in its entirety.
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