05 September 2007

EC weighs Fortis aggression on competitive Dutch market in ABN Amro review

European Commission regulators are paying closer attention to the Fortis part of the RBS-led consortium's ABN Amro acquisition as they try and assess to what extent Fortis' aggressiveness has contributed to the highly competitive Dutch banking market.

As part of the three-way acquisition of ABN Amro, Royal Bank of Scotland will acquire the international banking business, Belgo-Dutch bank Fortis will buy the Dutch retail banking unit and Spain's Santander will swallow the Italian and Brazilian subsidiaries. Of those, the Santander purchase merits only a cursory 'simplified' examination while the RBS part appears to be getting a pretty standard review

Because of the natural horizontal overlaps between Fortis and ABN Amro, this part of the transaction is attracting the most interest from regulators, particularly in the provision of banking services for retail customers and small and medium-sized businesses.

Even in such a concentrated market as the Netherlands, banking charges are relatively low. How much of that was down to Fortis' attempts to grab share from ABN Amro and others and whether it may be considered some sort of maverick is at the centre of the commission's concerns.

The commission is seeking to assess just how much of a competitive restraint Fortis is on its rivals and how aggressive the company is on the retail market, whether on a national level or even at a provincial or local level. It is examining how much that will change following its proposed acquisition of ABN Amro's assets.

Just how successful the company was in causing clients to switch between banks is also of particular interest to regulators; bank customers are traditionally among the most immobile and switching is rare.

Almost for the first time in the financial services industry the commission is also faced with assessing the impact of new technology on the Dutch market where broadband internet penetration is significant and internet use considerable. The Netherlands has the highest penetration of internet access at home (80 percent, according to recent European Commission figures) and the highest level of broadband access (66 percent) in the European Union. According to a document published by the Dutch central office for statistics, the percentage of people using the internet for some banking activities rose to 67 percent in 2006 from 58 percent in 2005.

The commission's assessment of the competitive impact could also then depend on just how susceptible Dutch consumers are to internet banking, as the establishment of an extensive branch network could pose a significant financial barrier to entry. If the commission assesses that the internet is an ineffective tool for customer capture and that a branch network is the only way to establish a significant market share, it could weigh on its decision.

The commission's probe into the business banking markets in the Fortis part of the acquisition is likely to be as equally focussed and the level of product competition between the two banks for small and medium-sized businesses and the ability of banks either to muscle in on deals or tempt customers to switch.

By addressing these concerns in its review, the commission is examining issues that would normally be of considerable importance to the national regulator, the NMA, which has made its views on the merger known to the commission.

The commission will rule on the acquisition by 19 September after it has assessed the responses to information requests sent to competitors and customers.

© MLex