SA’s Competition Commission last week said no to the four major commercial banks acquiring real estate-software company Comcorp Online and its BondTrak software that is used by mortgage originators (real estate agents). The four commercial banks, Absa, Nedbank, Standard Bank and First National Bank, had planned to acquire Comcorp for an undisclosed amount. More than 80% of the mortgage industry is controlled by the four banks. Comcorp says that its services and software have been involved in the origination of about 250 000 home loans worth about R60 billion.

The Competition Commission has classified the proposed deal between Comcorp and the four banks as a small merger, because the combined total revenue or assets is less than R200 million per year and that of the target firm is below R30 million.

Comcorp MD Richard Moss says his company refuses to comment apart from saying: "It is not up to us to appeal the decision, but rather someone else." According to the competition laws the parties involved have recourse to the Competition Tribunal and then ultimately to the High Court.

The Commission found that the joint control of the four banks over Comcorp would create a platform for co-ordinated conduct that is likely to lessen inter-bank competition. Furthermore, the new entity would also be able to dictate that only its software be used by the estate agents, thus making the market particularly difficult for new entrants and lessening competition in that sector.

According to the Commission, the banks intended acquiring Comcorp for the establishment of an industry-wide switch for the electronic submission of mortgage bond applications. All mortgage applications would have to be submitted via a single channel, being the switch.

Lizel Blignaut, Manager for Mergers and Acquisitions at the Competition Commission, says the transaction would enable the banks, through Comcorp, to jointly fix a transaction fee, which would require each originator to pay for the electronic submission of mortgage applications.

"The Commission found that this would have the effect of limiting the multiple submission of mortgage applications to competing banks, wherein the mortgage originators (estate agents) play one bank off against the other in an effort to obtain the best interest rate for the consumer. A restriction on this process would severely harm the consumer in that inter-bank competition would diminish," Blignaut says.

Service delivery is the key competitive variable in the origination market and software vendor markets.

"If the banks, through Comcorp, were to dictate the use of only the BondTrak software, all MOs would be forced to change their software packages accordingly, making their systems redundant as MOs compete in their respective markets by developing the most advanced and efficient technological systems," Blignaut says.

The joint fixing of prices and trading conditions by the banks would prevent innovation and limit competition amongst originators and vendors. It would further foreclose software vendors from competing in the software market, as they would be forced to de-link their existing software packages and only use the BondTrak software owned by the banks.

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