The ACCC has announced that it will not oppose Ventia’s proposed acquisition of Broadspectrum. Ventia is a 50/50 partnership between CIMIC Group Limited (ASX:CIM) and funds management firm Apollo Global Management, LLC.

Ventia and Broadspectrum are both providers of infrastructure services. The ACCC’s review focused on three types of infrastructure services: design and construction, operation and maintenance and facilities management.

The companies provide services to a wide range of industries, including industries that provide critical services to consumers such as electricity, telecommunications and water.

“We looked at this proposed acquisition closely to ensure strong competition remains in the supply of infrastructure services to industries with a direct impact on consumer prices,” ACCC Commissioner Stephen Ridgeway said.

“We contacted many customers of infrastructure services, and received consistent feedback that there is sufficient competition from alternative suppliers and that companies will continue to have a variety of options when contracting for infrastructure services.”

“Ventia and Broadspectrum generally offer differentiated services with minimal overlap in a number of industries including defence, justice, education, social housing, oil and gas, environmental consulting and real estate,” Mr Ridgeway said.

We are conscious of the impact of the COVID-19 pandemic on many businesses and transactions and, where possible, we will expedite reviews as we have done in this review.

Further information is available at Ventia Services Group Pty Ltd - Ferrovial Services Australia Pty Ltd (Broadspectrum).

Background

Ventia is a 50/50 partnership between CIMIC Group Limited and funds management firm Apollo Global Management, LLC. Ventia provides infrastructure services throughout a range of industries, including social infrastructure, transport and utilities. Ventia also supplies services for telecommunication infrastructure assets through its Visionstream subsidiary.

Broadspectrum provides infrastructure services across a range of industries, including defence, urban and social infrastructure, natural resources, transport, telecommunications and real estate. It also provides integrated property and facilities management services to 37 different Australian Government entities, including the ACCC.

Broadspectrum operates in its own name and through its subsidiary brands, including APP Corporation and Easternwell Group.

Design and construction services involve the planning, design and construction of capital assets. These services are inputs into the overall project delivery method used to take the project design from conception to construction, and handover to the customer.

Operation and maintenance services relate to existing infrastructure and include a combination of ongoing asset maintenance and repair, operational support and asset replacement.

Facilities management services relate to the maintenance of physical assets and their support processes.

Maintaining profits was a major consideration for the big four banks as they weighed whether to reduce mortgage rates in line with Reserve Bank of Australia cash rate cuts during 2019, the ACCC has found.

The ACCC’s Home Loan Price Inquiry interim report, released today, shows that the big four banks considered various factors as they decided whether to pass on the RBA’s June, July and October 2019 rate cuts. But recovering profits was central to their decisions to not always fully pass through the lower rates to mortgage customers.

“The banks were attempting to shore up their profitability during a period of low interest rates,” ACCC Chair Rod Sims said.

“It was their strong preference, after the RBA’s cuts, not to further reduce the rates customers were earning on some deposit products as they approached zero per cent.”

“The banks’ reluctance to cut these deposit rates led them to anticipate lower profits, which they aimed to recover by not always fully passing through cash rate cuts to their mortgage customers,” Mr Sims said.

The ACCC’s analysis also found that the big four banks benefitted from a sustained decrease in their funding costs during much of 2019. While headline rates for owner-occupier home loans with principal and interest repayments fell overall during 2018 and 2019, the banks’ funding costs fell even more over the same period.

“We recognise that much has changed in the economic and funding environment since last year. The COVID-19 pandemic has shifted priorities and the banks are playing an important role in supporting the economy,” Mr Sims said.

“However, the inquiry findings shed an important light on bank decision making and raise questions about whether the banks could, at the time, have passed on a higher proportion of those RBA cash rate cuts to their mortgage customers.”

The ACCC’s Home Loan Price Inquiry interim report also shows that although average interest rates charged by the big four banks on home loans fell during 2019, a lack of price transparency and higher interest rates for existing loans continued to cost customers.

The interim report examines home loan prices charged by the big four banks between 1 January 2019 and 31 October 2019. It found that home loan pricing practices continue to make it difficult for consumers to compare different mortgage products.

Headline rates did not accurately reflect the price most big four bank customers actually paid for their home loans, because the overwhelming majority of customers received discounts, including opaque discretionary discounts.

“Given the economic disruption, uncertainty and job losses stemming from the COVID-19 pandemic, many consumers may not be inclined to shop around and ask for discounts from their banks right now,” Mr Sims said.

“However, our analysis shows how that even a small further reduction in interest rates could potentially save thousands of dollars over the life of a mortgage. Consumers should consider this carefully when it is time to re-engage with their lender.”

For example, a customer with an average-sized new, owner-occupier, principal and interest mortgage of $386,000 could save about $5000 on interest payments in the first year if they went from having no discount to receiving the big four banks’ average discount of 128 basis points.

At the end of September, customers with new owner-occupier loans with principal and interest repayments were paying, on average, 26 basis points less than customers with existing loans. The difference was usually even more significant for customers with older loans.

The ACCC’s final report, scheduled for release later this year, will consider barriers to consumers switching to alternative home loan suppliers.

Further information at Home loan price inquiry

Background

On 14 October 2019, the Treasurer, the Hon. Josh Frydenberg MP, issued a direction to the ACCC to conduct an inquiry into the market for the supply of home loans. The specific matters the ACCC was directed to take into account included:

• prices charged for home loans since 1 January 2019, including:
  • the difference between advertised interest rates and interest rates paid by customers
  • the difference between interest rates paid by new and existing customers
  • home loan suppliers’ pricing decisions following changes in the RBA’s target for the cash rate, including the extent to which changes were due to suppliers’ cost of funds and the timing of the suppliers’ announcements
• impediments to consumers refinancing to alternative home loan suppliers.

The interim report focuses on the first issue regarding the prices charged for home loans between 1 January 2019 and 31 October 2019 by the big four banks, which account for close to 80 per cent (by value) of home loans held by authorised deposit-taking institutions in Australia. The final report will consider the second issue, impediments to consumer switching.

The big four banks are Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank, and Westpac Banking Corporation.

In preparing the interim report, the ACCC used its compulsory information gathering powers to obtain information and documents from the big four banks, and supplemented its analysis with data supplied by the RBA and the Australian Prudential Regulation Authority. 

The findings in the report reinforce and build on those in the ACCC’s earlier Residential Mortgage Price Inquiry.