Banks/Comcorp merger prohibited

The banks intended acquiring Comcorp for the establishment of an industry wide switch for the electronic submission of mortgage bond applications. All mortgage applications would have to be submitted via a single channel, being the switch. Furthermore, the banks intended to also acquire the BondTrak software used by mortgage originators ("MOs") in managing their processes.

The four banks are involved in the broad financial services market, including the market for the provision of home loan financing. Comcorp is involved in the development and provision of software to the home loan origination market. The parties therefore participate in the broad mortgage industry.

The Commission found that the joint control of the four banks over Comcorp would create a platform for co-ordinated conduct that is likely to lessen interbank competition.

"The transaction would enable the banks to, through Compcorp, jointly fix a transaction fee, which would require each originator to pay for the electronic submission of mortgage applications. The Commission found that this would have the effect of limiting the multiple submission of mortgage applications to competing banks, wherein the MOs play one bank off against the other in an effort to obtain the best interest rate for the consumer. A restriction on this process would severely harm the consumer in that inter-bank competition would diminish" said Ms Lizel Blignaut, Manager for Mergers and Acquisitions.

She further states that should the banks do this without an outside a merger approved by the Commission, it would amount to the fixing of a trading condition amongst competitors. This is prohibited in terms of Section 4 of the Competition Act. However, once the merger is approved it would not be seen as coordinated conduct, as the merged entity would constitute a single entity operating to the benefit of its shareholders. The imposition of such a fee would raise rival's costs as the MOs and banks compete in the market for mortgage applications.

In addition, the Commission found that the transaction would lead to a substantial prevention and lessening of competition in the software market. Service delivery is the key competitive variable in the origination market and software vendor markets. If the banks, through Comcorp, were to dictate the use of only the BondTrak software, all MOs would be forced to change their software packages, accordingly making their systems redundant, as Mos competes in their respective markets by developing the most advanced and efficient technological systems.

The joint fixing of prices and trading conditions by the banks would prevent innovation and limit competition amongst originators and vendors. It would further foreclose software vendors from competing in the software market, as they would be forced to de-link their existing software packages and only use the BondTrak software owned by the banks.

The Commission therefore found that the merger would substantially prevent and lessen competition in the home loan application, home loan software and the home loan finance markets.

Whereas the parties put forward certain efficiencies the Commission found that these can be attained outside the merger and do not outweigh the anticompetitive effects arising from the merger. In addition, there are no public interest considerations that could justify approving this otherwise anticompetitive merger.

The Commission accordingly prohibited the merger.