The Commonwealth Bank has confirmed plans to take control of mortgage broker Aussie Home Loans, a move which will increase its position as Australia’s number one home loan provider and, potentially, tighten the big four bank’s stranglehold on the mortgage market.
Although the CBA already owns 33% of Aussie, it plans to extend its stake to 80%, with an option to take full control in 2016. Until then, the remaining 20% will stay with founder John Symond, who’ll remain the company’s executive chairman.
Since its inception in 1992, Aussie has pitched itself as an alternative to the big banks, so it’s understandable that aligning itself with Australia’s biggest may raise some concerns among both customers and consumer watchdogs. So far, the CBA says it plans to keep Aussie operating independently.
The deal still requires the approval of the Australian Competition and Consumer Commission, who’ll review the acquisition to determine its potential impact on the financial sector and the possibility of CBA using its position to further narrow home lending competition.
While Symond has welcomed the move, and declared the takeover will have little impact on Aussie customers, critics worry that the loss of Aussie’s independence will lead to even more concentration in a market already dominated by the four major banks.
Aussie currently distributes loans from 18 different lenders, including CBA and the rest of the big four. The concern the CBA takeover raises is if a controlling interest will mean the bank has the ability to influence Aussie’s brokers to push through more CBA loans at the expense of competitors.
Aussie are insisting it will be ‘business as usual’ for customers, and the move won’t affect the company’s stance as a big-bank alternative.
“It’s got to increase competition because, as part of the transaction, Commonwealth Bank has agreed for the integrity of the Aussie business model to remain.”
John Symonds, Aussie Home Loans
In contrast, consumer rights group CHOICE believe Aussie has effectively sold out.
“Any time we see these banks get bigger, consolidate, become more profitable, we don’t necessarily think that’s a good thing for competition in Australia at all.”
Matt Levey, CHOICE
As well as Aussie, CBA also owns Bankwest, and it isn’t the only bank pulling the strings of smaller financial organisations. Westpac owns St.George, Bank of Melbourne and RAMS, and NAB powers UBank and its Homeside mortgage division (although NAB’s involvement is openly displayed in UBank advertising).
Credit union turned customer-owned bank, bankmecu, has asked Treasurer Wayne Swan to tighten regulations so that financial services groups owned by the big banks are forced to disclose ownership in their advertising. Bankmecu hope that greater transparency regarding just who is in control of smaller financial institutions will enable customers to make more informed choices about where to do their banking.
Looking at the other industry we cover extensively at Whistleout – telecommunciations – shows that it might not be that huge a deal after all. Optus owns Virgin Mobile and has kept it entirely separate, and frequently more competitive, than its primary Optus brand. There is currently no disclosure of this relationship in Virgin Mobile’s advertising, other than that its coverage is powered by the Optus network (but so are many smaller providers, or MVNOs).
The question of whether CBA’s ownership of Aussie is going to affect consumers ultimately lies with consumers themselves. While we’re all quick to complain about the the big banks, ANZ ,Westpac, NAB and CBA still collectively wrote up around 92% of all housing finance in 2012.
Despite attempts by the government to make switching home loan lenders easier and cheaper, it’s still a daunting process for the majority of Australians. Unfortunately, not all of us have the time or expertise to shop around independently of a broker in order to find the right loan to suit our needs. And many Australians get comfortable with their existing lender or banker, and don’t realise that they could potentially save thousands by checking out the competition.
The consequence of a lack of mortgage competition is that homebuyers are paying more, with less lenders on the market meaning higher interest rates. So CHOICE and similar advocates are right to be concerned that Aussie – who have over 250,000 customers nationwide – may eventually begin shutting other banks and smaller contenders out, in favour of pushing CBA loans.
Although Aussie becoming a CBA owned brand might have the ACCC asking questions (and rightfully so), is the takeover going to have the same effect on consumers? Will forcing the subsidiaries of the major banks to disclose who they’re owned by have that much of an impact, when it’s all information that is easily Google-able anyway? Is it plausible that the average consumer would react negatively upon discovering their broker, credit union or other financial institution was actually owned by Westpac, NAB, ANZ or the CBA?
Considering that Australia’s major banks are still enjoying an overwhelming market share when it comes to financial services, despite competitive rates offered by building societies and credit unions, perhaps consumers aren’t that concerned after all?