In recent days, the media has drawn attention to the competitive distortion that can arise from banks' operations in business enterprises. In particular, the operation of Arion Bank in the Penninn chain and the position of competitors in the stationery, book and furniture markets, the company's loss-making operations and the financial support provided by Arion Bank to it, have been discussed. On this occasion, the Competition Authority wishes to make the following statement:
Since the collapse, the Competition Authority has pointed out the danger that the takeover of companies by banks could lead to a distortion of competition in the relevant markets. In Opinion No. 2/2008, Decisions by banks and the government on the future of companies in competitive markets, from November 2008, the Competition Authority directed the commercial banks to take into account 10 specific principles when making decisions concerning the future of companies in competitive markets and taking over such companies. This was also discussed in a discussion paper published in December 2009 (No. 2/2009), 'Banks and Corporate Restructuring'.
In a ruling of the Appeal Board of Competition dated 21 January 2010, Síminn v. The Competition Authority (no. 18/2009), the board concluded that due to exceptional circumstances currently prevailing in the business community, the Competition Authority is authorised to impose conditions on banks in connection with their takeover of businesses, even if the takeover does not involve market overlap or a dominant position. Thus, the authority could impose conditions that would ensure the independence of the businesses and conditions for their sale within a reasonable time.
The Competition Authority has built upon this ruling. Since March 2010, the authority has, in 27 decisions, imposed conditions on the banks regarding their takeovers of companies. Of these, 17 decisions are active, while 10 are no longer in effect due to changes in ownership. A list of these companies can be found in the background information below.
The conditions are based on the views set out in the aforementioned discussion paper on banks and corporate restructuring. They include, inter alia, the following:
Report No. 2/2011, Competition after the Crash, published in June, discusses in detail the aforementioned conditions, how the Competition Authority's monitoring has been conducted, and the assessment of its results. It states, among other things, that four investigations were launched following indications of breaches in connection with banks' takeovers of businesses. For example, in July this year, the Competition Authority imposed a 40 million króna administrative fine on Landsbanki Íslands hf. (the former Landsbanki) for breaches of the merger provisions of the Competition Act. The Competition Appeals Board recently confirmed that an infringement had occurred but reduced the fines to 7.5 million krónur.
The aforementioned report also states the Competition Authority's assessment that the banks were not sufficiently successful in setting companies' profitability requirements and the related reporting. In the Competition Authority's view, it is important that clear profitability requirements are set for acquired companies in order to counteract the incentive for banks to increase the value of acquired companies by financing undercutting or increasing market penetration and thereby expanding the relevant market share. companies. The Competition Authority's conclusion is that the banks have not addressed this adequately.
The report proposes measures to address this. Their findings are not yet available. The report (Competition after the Crash) also publishes the results of a detailed investigation by the Competition Authority into the financial position and financial restructuring of 120 large companies in selected competitive markets. It is stated, among other things, that as of the end of last year, banks controlled around 17% of the shares in these companies (weighted shareholding). However, it can be argued that the banks control 46% of the companies' shares if companies deemed by the supervisory authority to be in a very poor position are also included. It is revealed that the financial position of almost half of the companies was very poor at the start of the year. The conclusion is drawn that the restructuring of companies is proceeding too slowly and that the wrong incentives are delaying the process or pulling it in the wrong direction. The Competition Authority considers it urgent to ensure that the banks' true ownership of companies is made public and, following the report, has begun to examine whether the companies deemed to be in a very poor financial position are under the control of the banks for the purposes of competition law.
The report then sets out the views of businesses that the Competition Authority consulted during its preparation. In addition to written submissions, the Authority met with around 70 business representatives, bankers, consultants, academics and public sector representatives.
The takeover of Penninn ehf. by Nýja Kaupþings banki hf. (now Arion banki) was among the first cases in which the Competition Authority examined a bank's takeover of a business following the crash. In Decision No. 10/2009, from March of that year, the Competition Authority concluded that there were no grounds to take action regarding the merger. The authority considered that it lacked the powers to annul such a merger or to impose conditions on it. The Competition Authority was only permitted to issue recommendations to the banks, as it had done in November 2008, see above.
In its ruling of 21 January 2010, the Competition Appeals Tribunal concluded that the Competition Authority could impose binding conditions on banks in connection with their takeover of businesses.
In the decision of the Supervisory Authority no. 6/2010, Arion Bank hf.'s acquisition of 1998 ehf., Conditions were imposed which, among other things, relate directly to Arion Bank's ownership of Penninn. These are intended, among other things, to ensure full independence between, for example, Hagur and Penninn, as well as to prohibit the bank from interfering in transactions between Hagur and related companies, including Penninn. Hagar and Penninn are competitors, among other things, in the sale of books. The same conditions apply following Arion Bank's sale of a majority stake in Hagar, see SE decision no. 20/2011, Joint control of Arion Bank and Búvallar over Högur hf.
The Competition Authority has been considering whether it is necessary to impose further conditions on Arion's ownership of Penninn. The bank has argued that the authority lacks the legal authority to do so, but has expressed a willingness to discuss possible remedies. This investigation is still ongoing, and the Competition Authority has requested information on, among other things, the financial relationship between the bank and Pennan.
In parallel with this investigation, the Competition Authority has addressed various tips and complaints concerning the operation, ownership and business practices of Pennan. The Competition Authority has therefore requested information and evidence from Pennant, and the handling of these matters is not yet concluded. As the aforementioned matters are still under investigation, the Competition Authority cannot at this stage provide any further information about them.
The Competition Authority has now imposed conditions on 27 bank acquisitions. This includes decisions on the takeover of banks by resolution boards and the acquisition of Vestia by the Icelandic Growth Fund. The Competition Authority has also received several other merger notifications of a similar nature, which are currently under investigation. Of the aforementioned decisions, the following 17 are still in effect:
Decisions which are no longer effective due to changes in control are as follows:
The acquisition of Pizza Pizza ehf. by Landsbanki Íslands hf. (Decision no. 17/2011). Each of the above cases has its own particular characteristics, and in each investigation the competitive effects of a bank's ownership of a business enterprise are weighed and assessed. Nevertheless, the conditions imposed have been similar from one company to another, and comparable main considerations have been used as a basis.
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