COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 50/LM/AUG10
In the matter between:
ABSA Bank Ltd Acquiring Firm
And
Alexander Forbes Homeplan Joint Venture Target Firm
Panel : Y Carrim (Presiding Member)
A Wessels (Tribunal Member)
M Mokuena (Tribunal Member)
Heard on : 03 November 2010
Order issued on : 03 November 2010
Reasons issued on : 23 December 2010
Reasons for Decision
Approval
1] On 03 November 2010 the Competition Tribunal (“Tribunal”) approved
a transaction involving ABSA Bank Ltd and Alexander Forbes
Homeplan Joint Venture. The reasons for the approval of the
transaction follow below.
The parties and their activities
2] The primary acquiring firm is ABSA Bank Ltd (“ABSA”), a wholly owned
subsidiary of ABSA Group Limited (“ABSA Group”). There are
numerous shareholders in ABSA Group of which Barclays Bank PLC is
the largest. ABSA is a duly licensed commercial bank. Of relevance to
this transaction is its involvement in the provision of Pension Backed
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Home Loans (PBLs) by means of its Pension Supported Housing
Loans business unit, which is located within the Secured Lending
Cluster of the Retail Bank division.
3] The primary target firm is the business of Alexander Forbes Homeplan
Joint Venture (“Homeplan”), an unincorporated joint venture
partnership between ABSA and Alexander Forbes Financial Services
(Pty) Ltd (“Alexander Forbes”). Homeplan does not control any entities.
4] Homeplan is active in the provision of PBLs to individuals. Its clients
are members of retirement funds and the retirement funds themselves.
The members receive the funds advanced by Homeplan for their
housing requirements and are party to the PBL arrangements. The
retirement fund is also a party to the arrangement as it stands surety
for the loans advanced. The merging parties described their roles in
Homeplan as follows: “ Alexander Forbes performs the administrative
functions and ABSA the credit and funding matters for Homeplan.
Alexander Forbes utilises its large influence in the pension fund
administrative business to secure mandates and to generate new
business.”
The transaction
5] In terms of the proposed transaction ABSA intends to acquire sole
control over the business of Homeplan by acquiring Homeplan’s PBL
book. Following the implementation of the proposed transaction the
parties have agreed to terminate and dissolve Homeplan.
The rationale
6] The proposed transaction is aligned to ABSA’s strategy to develop its
existing business in the provision of PBLs. Alexander Forbes
considered Homeplan to be better placed with an owner with access to
and direct control of its own funding lines.
The relevant market and impact on competition
7] As is evident from the description of the parties’ activities above, their
activities horizontally overlap in relation to the provision of PBLs.
8] In terms of the Pension Funds Act, 24 of 1956, a member of a pension
8] In terms of the Pension Funds Act, 24 of 1956, a member of a pension
scheme may use his/her pension as security for a loan for certain
stipulated housing purposes up to a maximum of 90% of his/her post-
tax withdrawal benefit in a fund. The actual percentage is determined
by the rules of the fund and by how much each individual can afford to
repay every month. The fund guarantees the loan which is ordinarily
repayable in instalments and the tangible asset, i.e. the house, is not
used as security. PBLs are provided by employers (so-called direct
loans) as well as by some retirement funds directly to their members.
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9] Although the merging parties stated that PBLs provide borrowers with
“quick and convenient access to credit, and increased affordability ”,
they argued that the relevant market is a national market for unsecured
personal lending because individuals can easily substitute between
PBLs and micro-loans for the purpose of funding improvements to
residential property. The merging parties further argued that PBLs are
predominantly provided by both corporates (in their capacity as
employers) and by retirement funds. For the sake of completeness the
merging parties however submitted information to the Competition
Commission (“Commission”) in relation to the provision of (i) home
loans; (ii) unsecured personal loans (including micro-loans); and (iii)
PBLs.
10]The Commission however disagreed with the merging parties’ market
delineation and concluded that the relevant market is a national (more
narrowly defined) product market for the external provision of PBLs by
financial institutions.
11] According to the Commission micro-loans and PBLs are not close
substitutes because of the different risks involved in securing the
loans. An individual cannot elect to obtain a PBL unless he/she has
pension benefits to pledge, i.e. PBLs are secured against a safe and
generally liquid asset namely the pension scheme, whereas one does
not require any security to obtain a micro-loan. PBLs can furthermore
only be used for housing purposes while micro-loans can be used for
any number of purposes. Finally, individual pension benefits can only
be used to secure a PBL if the relevant pension scheme permits it;
there are no such constraints concerning micro-loans. The
Commission furthermore found that the average terms, interest rates
and speed of conclusion of these two types of loans are significantly
different.
12]The Commission also concluded that there is limited substitutability
different.
12]The Commission also concluded that there is limited substitutability
between PBLs and mortgage loans given (i) significant differences
between the costs and interest rates of these two types of loans, with
PBLs being significantly cheaper from a customer perspective; (ii) the
generally small size of PBLs, which make them inappropriate for
house purchases; and (iii) the use of PBLs by low income groups who
generally would have less access to mortgage finance.
13]The Commission furthermore rejected the contention that there is a
larger relevant market for the provision of PBLs generally, including
the self-provision of PBLs by pension schemes. According to the
Commission a scheme that self-provides PBLs to its members will not
also appoint an external PBL provider. A member of a scheme
therefore cannot substitute between an externally provided PBL and
an internally provided PBL because the scheme will provide only for
one of these methods. The Commission therefore regarded the
provision of PBLs by external providers as a separate relevant market
to that of self-provision of PBLs by schemes themselves.
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14]Nothing however turns on whether the market is defined broadly as
advanced by the merging parties or defined more narrowly as argued
by the Commission because, as set out below, the transaction does
not raise any competition concerns under any plausible market
delineation. We therefore leave the market definition open in this
case.
15]In a potential national market for the provision of home loans
Homeplan has a de minimis market share and we therefore do not
consider this potential market any further below.
16]In the provision of personal unsecured loans by banks the combined
national market share of ABSA and Homeplan is less than 25%. 1
Large players in this market segment include African Bank, Nedbank
Standard Bank and FNB. In a potential narrower market for the
provision of micro-loans ABSA is a small player compared to other
entities in the market of which the leading player is African Bank.
17]In a (broadly defined) potential market for PBLs as argued by the
merging parties (including direct loans by employers and retirement
funds) the combined national market share of ABSA and Homeplan is
less than 15%. Although the narrower market as defined by the
Commission, i.e. the external provision of PBLs by financial
institutions in South Africa, is a concentrated one several large
players will be active in such market post merger including the large
banks such as Standard Bank, FNB and Nedbank as well as the non-
banking PBL provider NBC Futureplan. Other less significant
competitors include IEMAS, Capitec, Abacus and Theba Bank.
18]The Commission however raised a competition concern in regard to
certain clauses in a collaboration agreement concluded between
ABSA and Alexander Forbes. This agreement is an agreement
whereby ABSA contracts Alexander Forbes to construct a computer
interface between it and Alexander Forbes for its exclusive use for a
interface between it and Alexander Forbes for its exclusive use for a
certain period in order to administer PBL loans and flag pledged
pension benefits.
19] In considering the theory of harm the Commission concluded that a
pre-merger linkage between Homeplan, as PBL provider, and
Alexander Forbes, as pension administrator, gave Homeplan a
significant competitive advantage and hold over schemes to which
they were both appointed. The original terms of the above-mentioned
collaboration agreement between ABSA and Alexander Forbes (see
paragraph below) appeared to continue such a competitive linkage in
future between ABSA and Alexander Forbes. Subject to legislative
restrictions and discharging their fiduciary duties, this agreement
initially required Alexander Forbes to use its best endeavours to
position ABSA as preferred PBL provider subject to ABSA’s pricing
being competitive. Furthermore, payments are to be made in respect
1 This market share does not take into account the provision of personal unsecured loans by non-banks.
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of each loan or advance taken by the beneficiary of an Alexander
Forbes administered pension scheme. According to the Commission
this would incentivise Alexander Forbes to favour ABSA thus
establishing, in effect, the same significant advantage that existed
prior to this transaction.
20] Although the parties disagreed with the Commission’s identified
competition concern it nevertheless in October 2010 amended the
relevant clause(s) in the collaboration agreement between ABSA and
Alexander Forbes so that ABSA would not act as a preferred provider
of PBLs but only as a provider (not sole, exclusive or preferred).
According to the Commission this largely severs the linkage
established by the collaboration agreement between Alexander
Forbes as pension administrator and ABSA as PBL provider.
21]Given the aforementioned amendments to the collaboration
agreement and other considerations, we find that the proposed
transaction is unlikely to substantially prevent or lessen competition in
any potential relevant market.
Public interest
22]The parties confirmed that none of the Homeplan employees will be
retrenched as a result of the proposed deal. No other public interest
issues arise from this transaction.
CONCLUSION
23]We approve the proposed transaction unconditionally.
____________________ 23 December 2010
A Wessels DATE
Concurring: Y Carrim and M Mokuena
Tribunal Researcher: R Badenhorst
For the merging parties: ABSA was represented by its own in-house legal
representative
For the Commission: F Reid
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