The Competition Authority has today concluded its investigation into Landsbankinn's acquisition of TM. The investigation concludes with a settlement between Landsbankinn and the Competition Authority.
Landsbankinn is, as is well known, the country's largest commercial bank and offers individuals, businesses and investors a comprehensive range of financial services. TM is the third largest general insurance company in the country and also operates a life insurance business through its subsidiary, TM Life Insurance Ltd.
The merger is predominantly a so-called conglomerate merger, where universal banking operations are merged with insurance activities. Both Landsbankinn and TM operate in oligopolistic markets where there are considerable barriers to entry.
During its investigation, the Competition Authority sought views in an open consultation process, receiving submissions primarily from the competitors of the merging companies. Furthermore, the Competition Authority requested detailed information from commercial banks, savings banks and insurance companies, in order to assess the position of the merging parties in the markets in which they operate. Furthermore, during the investigation, opinions and further information deemed necessary for the merger investigation were sought.
The investigation has, among other things, revealed that TM's market share in the damage insurance market has shrunk for many years, and there are indications that this is due to the company's weaker competition for customers than before. Thus, the company has conceded ground in price competition with the other insurance companies. It is reasonable to assume that with the new ownership, scope and incentives will be created for increased competition in the market.
With regard to the commercial banking market, the available data show a very strong position for the three commercial banks, in a market protected by significant barriers to entry. The restrictions on competition that would, in the absence of change, have resulted from the merger of Landsbankinn and TM relate to a considerable extent to the marketing and sale of TM's insurance products through Landsbankinn's distribution network. The Competition Authority considers it important to ensure that the merger does not distort competition based on the bundling or intertwining of insurance and commercial banking services.
At a meeting on 17 December 2024, the Competition Authority informed Landsbankinn of its preliminary assessment of the merger's effects and outlined the specific harmful effects that could result from it. On 23 December 2024, Landsbankinn requested settlement negotiations and submitted a proposal for remedies to address the competition concerns that the Competition Authority had identified.
On that basis and following further discussions, Landsbankinn has now reached an agreement with the Competition Authority.
Under the settlement, the bank undertakes to ensure that special terms for TM insurance are not subject to the condition that the customer's salary is paid into their account with the bank..[1]
Acquiring clients for payroll services can be highly significant in the competition for the commercial banking market. Payroll accounts can thus be considered an important means of attracting wider business. The investigation suggests that smaller competitors in the retail banking market may find it difficult to withstand the effects of banks with a strong position, such as Landsbankinn, tying special insurance terms to the condition that customers hold an account with that bank. Such conduct could therefore restrict the growth and survival of smaller competitors, and they may even be excluded from competing for a large share of customers in the market for general retail banking services.
The settlement also provides that Landsbankinn will endeavour to operate in accordance with the objectives set out in the bank's previous settlement with the Competition Authority, as described in Decision No. 22/2017., Measures to strengthen competition in the commercial banking market. The said settlement was primarily aimed at the following:
a) Reduce the costs incurred by customers when switching banks.
b) To promote more effective competition from individuals and small businesses with those providing commercial banking services in Iceland.
c) Work against situations that could give rise to tacit coordination in the market/markets for retail banking services.
With the above-mentioned settlement pursuant to decision no. 22/2017, inter alia banned prepayment charges on variable-rate loans and also unilaterally declared in a binding manner that it would not increase interest rates or remove interest discounts in older mortgage agreements because the borrower no longer had a salary account with the bank. or other business with the bank.[2]
Arion Bank and Íslandsbanki also underwent comparable conditions, by Decisions no. 24/2017 and 25/2017.
The condition set out in Article 2 of the new settlement with Landsbankinn is primarily in line with points b and c of the aforementioned objectives. As set out above, the condition of the new settlement is specifically aimed at preventing the position of smaller competitors in the commercial banking market from being weakened as a result of the acquisition of TM, as this could facilitate tacit coordination among the three large commercial banks.
The Competition Authority will shortly publish a detailed decision setting out the investigation and its findings in more detail.
The settlement between Landsbankinn and the Competition Authority, dated today, is available. here.
[1] The settlement covers not only current accounts but also other types of accounts into which wages may be paid. With special terms For the purposes of the above, this refers to terms that deviate from those offered to the relevant customers for insurance, had his salary not been paid into an account with the bank.
[2] A provision to that effect was to be found in the relevant older mortgage agreements.
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