CCPC to carry out a Phase 2 investigation of BoI's proposed acquisition of KBC's mortgages

OCTOBER 20, 2021

The Competition and Consumer Protection Commission (CCPC) has decided to carry out a full Phase 2 investigation into the proposed acquisition of certain assets and liabilities of KBC Bank Ireland PLC by The Governor and Company of the Bank of Ireland.

Following an extended preliminary investigation, the CCPC has determined that a full investigation is required in order to establish if the proposed transaction could lead to a substantial lessening of competition in the State. The CCPC will publish its Phase 1 determination no later than 60 working days after the date of the determination and after allowing the parties the opportunity to request that confidential information be removed from the published version.

The CCPC received a number of third-party submissions during the Phase 1 investigation. Any further parties who would like to send in submissions are invited to do so, via email to mergers@ccpc.ie, by 4.30pm Wednesday 10 November 2021.

Can they really prevent this going ahead though?

The deal on its own does not impact on competition as technically it does not result in kbc's exit as this deal does not involve sale of all of kbc's business.

Hi Dazzler

It reduces the suppliers of mortgage products.
It increases BoI's market share.

So yes, there is a case to be made that it is anti-competitive.

Brendan

Brendan Burgess said:

Hi Dazzler

It reduces the suppliers of mortgage products.
It increases BoI's market share.

So yes, there is a case to be made that it is anti-competitive.

Brendan

Click to expand...

I wasnt totally clear, sorry.

Really my question is can they force KBC to stay when it clearly wants out?

Competition law is outside my wheelhouse but i would have thought that the rationale you outline above applies to any bank sale in the state?

No, I don't think that they could force KBC to stay.

But they could stop it from selling their mortgage book to Bank of Ireland.

Brendan

It's not so long ago, since the Troika (?) told Bank of Ireland to sell ICS Mortgages as a condition for the state bail-out.

Brendan

Brendan Burgess said:

It reduces the suppliers of mortgage products.

Click to expand...

Not really Brendan.

KBC has already decided to exit the Irish market because they have determined that they cannot carry on a functional banking business here due to our arbitrary legal and regulatory framework.

Selling a loan book to BOI won't reduce the number of mortgage providers in Ireland - KBC are exiting the market regardless.

Lenders worldwide increasingly moved from an "originate and hold" to an "originate and distribute" model over the last few decades and nobody ever suggested that this development reduced competition in any way.

Boi selling ICS was more about fixing BOI than increasing competition. After all they left EBS as part of AIB.

Surely this is just window dressing. At the end of the day there really doesn't seem to be much appetite for Irish bank assets. It would be interesting to see who else would buy it.

Sarenco said:

Selling a loan book to BOI won't reduce the number of mortgage providers in Ireland - KBC are exiting the market regardless.

Click to expand...

Hi Sarenco

I see your point.
Let's say KBC announced that they were stopping writing new business and would just slowly wind down the existing book. That would be the exit of a lender and a loss of competition.

Now BoI steps in and says: "We will buy it". That doesn't change the number of market participants.

But the CCPC could say : "Find a different buyer". But it's very unlikely as it would not be easy to find a different buyer.

KBC customers are probably better off with BoI rather than with a dead bank or a fund which is no longer lending.

But they could still stop BoI from acquiring it on the basis that it gives them too much control of the market.

Brendan

Brendan Burgess said:

But they could still stop BoI from acquiring it on the basis that it gives them too much control of the market.

Click to expand...

AFAIK, BOI have less than 25% of the mortgage market - they are hardly the dominant player.

In any event, enlarging BOI’s balance sheet won’t have any impact on competition (or the lack of competition) in the mortgage origination market - which is what really matters to consumers.

Interesting points.

Compare with home insurance. The share of the "book" is around the share of the new business as contracts are short.

But with mortgage lending, BoI could be uncompetitive for new business but still have a big back book.

My submission on their first phase study was that customers chose KBC because of their low rates. BoI discriminates between new and existing customers. So it would be bad for KBC customers to go to BoI as they would be stuck with higher rates if they didn't move.

However, that gets back to the original point - what is bad for KBC customers is KBC's departure from the market and not BoI's taking over the mortgages.

Brendan