COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 18/LM/Mar02
In the large merger between:
Cape of Good Hope Bank Limited
and
A division of Nedcor Investment Bank Limited
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Reasons for Decision
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APPROVAL
On 24 April 2002 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Cape of Good Hope Bank Limited and a division
of Nedcor Investment Bank Limited, in terms of section 16(2)(a). The reasons for
the approval of the merger appear below.
The parties
1. The acquiring firm is Cape of Good Hope Bank Limited (“CGHB”). CGHB
is described as a niche regional bank, significantly smaller than the big
four banks, and holds an A2 bank rating. 1 It has a network of 12 branches
throughout the Western Cape and Gauteng and offers a range of products
from property development finance to home loans to shortterm insurance,
to financial planning to treasury facilities, etc.
2. CGHB is a wholly owned subsidiary of Nedcor Limited (“Nedcor”), the
country’s second largest bank and listed on the JSE. Nedcor is described as an
A1 rated bank, one of the big four. Old Mutual, through OMSA, is one of the
largest shareholders of Nedcor.
3. The target firm is a portion of the business of Nedcor Investment Bank
Limited (“NIB”), a subsidiary of Nedcor. 2 NIB, also listed on the JSE, is an
investment bank, involved in banking (corporate finance, private equity,
1 According to Fitch South Africa, the international rating agency, record page 10,50, 96.
2 Nedcor has a 84% stake in NIB. Both CGHB and NIB have the same shareholders, therefore ultimate
control remains the same both pre and post merger.
structured and project finance), treasury facilities, commercial and
industrial property finance , investment management, index management
and asset management.
The merger transaction
4. Only the commercial and industrial property loans and mortgage portion of
the business is being acquired by CGHB. More specifically, the provision
of commercial and industrial property loans and mortgages falling below
R5 million. This business apparently constitutes 6.7% of NIB’S total
mortgage loan book of R6 billion, the value being R400 million.
5. Postmerger, CGHB and NIB will continue to compete in respect of the
provision of commercial and industrial property loans in excess of R5
million.
Rationale for the Transaction
6. This is a strategic decision taken by NIB, reflecting an internal
restructuring, in terms of which it seeks to dispose of its commercial and
property loans and mortgages below R5 million to focus on that exceeding
R5 million (“the upper end of the broad market”). Furthermore, the
transaction will enable CGHB to have direct control of this business and to
expand its customer base in order to grow.
The relevant product market
7. Since both parties are active in the market for the provision of
commercial
and industrial property and mortgages below R5 million, and since this is
the only portion of NIB’s business being acquired, this is the relevant
market for the purpose of this transaction.
Geographical Market
8. The Tribunal endorses the Commission’s view that, insofar as loans are
provided to clients across South Africa, the geographical market is the
entire country.
Impact on competition
9. The parties were unable to provide market shares in respect of the market
for loans below R5 million. They say they are unable to get market data for
for loans below R5 million. They say they are unable to get market data for
the below R5 million threshold since Banks have mixed loan profiles,
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which will start at R5million and then eventually reduce to R5 million. The
data they did provide was only in respect of the broad market, that is both
loans exceeding and below R5 million.
INSTITUTION MARKET SHARE
ABSA 30.9
NEDCOR (INCL. NIB AND CHGB) 17.7
BOE BANK LIMITED 13.4
FIRST RAND BANK LIMITED 10.3
OLD MUTUAL BANK LIMITED 0.07
OTHER 9.3
TOTAL 100
Source: NIB’s Form CC4 (2) Statement of Merger Information
10. The parties advised that premerger, CGHB holds 1.68% of the South
African mortgage industry. They accordingly maintain that the market
shares of the affected transaction are too small to have an impact and that
there is much competition in this market, both from existing banks as well
as from nontraditional banking institutions in this sector, such as South
African Home Loans.
11. However we find that the market share data is academic. What is
significant is that the Nedcor Group is retaining control since the business
is merely passing from NIB to Nedcor Limited, therefore the existing
competitive position in this market will not be altered by this merger.
Conclusion
The Tribunal endorses the Commission’s finding that this transaction will not
substantially lessen or prevent competition in the relevant market and
accordingly approves the transaction unconditionally. There are no public interest
concerns which would alter this conclusion.
_____________ 26 April 2002
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N.M. Manoim Date
Concurring: U. Bhoola. P. Maponya
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