The Competition Authority has today taken two decisions regarding mergers of companies in the financial market. On the one hand, this concerns the annulment of a merger involving Landsbankinn's acquisition of a stake in Verdis (formerly Arion Securities Depository), and on the other, a decision regarding Íslandsbanki's takeover of Byr.
Verdis is a company wholly owned by Arion banki and operates in the securities settlement market. Verdis handles ...custody and settlement of securities, as well as other back-office processing for Arion Bank and other financial institutions. Through the acquisition of a stake in Verdis, Landsbankinn and Arion Bank will have joint control over Verdis, and representatives from the banks will sit together on the company's board. The merger will also result in Landsbankinn ceasing its own securities custody and will instead receive this service from Verdis. The Competition Authority's decision states that this It means that Verdis will enjoy a dominant position in the market and become the market leader. in securities administration. The merger seriously harms competition in this respect.
Landsbankinn and Arion banki are significant competitors in the market for general securities services, a market which is closely linked to the one in which Verdis operates. These banks, together with Íslandsbanki, are also the main competitors in the general commercial banking market. A report by the Competition Authority, published earlier this year, points to significant oligopoly and concentration in the Icelandic financial market. A lack of competition and competition barriers in that market can have very negative consequences for Icelandic business life and consumers. It is therefore a priority to tackle anti-competitive cooperation between banks, which can, for example, take the form of their joint ownership of service companies. It is noted that in such oligopolistic markets, the competitive independence of rivals is particularly important.
The merger creates a new platform for information exchange and cooperation between Landsbankinn and Arion banki, which may harm competition in the financial markets in which the banks operate. The merger therefore also contravenes competition law in this respect.
Right from the outset of this case, the merging parties requested permission to submit proposals for conditions that could prevent the merger from distorting competition. However, those proposals are not sufficient. as they do not address the competition concerns related to the joint control of Landsbankinn and Arion banki over Verði. The companies involved in the merger have argued that it entails significant efficiencies. Under competition law, efficiencies may be taken into account if, among other things, the companies involved prove that the efficiencies are passed on to consumers. The merging parties failed to prove this, and the merger is therefore annulled.
See the decision for details No. 34/2011.
The Competition Authority has also been considering Íslandsbanki's takeover of Byr, as the companies are competitors in the financial market. The authority's decision states that there are strong indications that this merger will increase harmful duopoly. The merging parties, however, have argued that the merger should be approved on the basis of the competition law 'failing firm defence'. In this regard, reference is made to the serious situation of Byr. It is recognised that such a corporate situation can lead to a merger being permitted. The reason is that in such cases, the impediments to competition do not arise from the merger itself, but from the difficult position of the acquired company.
As a result, the Competition Authority has conducted a comprehensive investigation into the situation at Byr, the manner in which the sale of the company was conducted, and whether other viable options for the sale of Byr existed that would have been more favourable for competition. In this connection, the Authority has obtained data and viewpoints from, among others, domestic and foreign companies that expressed an interest in purchasing Byr, and has sought the opinions of the Financial Supervisory Authority and the Ministry of Finance.
The conclusion of the Competition Authority is that Byr's financial position is very poor and it is clear that the requirements of the law on the capital base of financial institutions are not met. The Supervisory Authority considers that the sale process for Byr was subject to certain shortcomings, but that there were no realistic prospects for a sale other than to Íslandsbanki. It is also of significant importance that information from the Financial Supervisory Authority shows that if this merger did not go ahead, the authority would exercise its powers and transfer Byrs's loans and deposits to one of the major commercial banks. From all of this, it follows that the conditions for a company in distress are met, and the Competition Authority therefore has no legal authority to have any further involvement in the merger.
The Competition Authority is of the opinion that this inevitable outcome harms competition as it increases concentration and oligopoly. It is therefore of the utmost importance that the Competition Authority and other relevant parties ensure that no collusion takes place between the three commercial banks. Collaboration or interaction that harms competition, to the detriment of business life and the public.
See the decision for details No. 33/2011.
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