Slowcoach AMP wins the race for Axa

http://www.theaustralian.com.au


THERE is brutal commercial paradox in Graeme Samuel's decision to reject NAB's $14 billion attempt to absorb Axa Asia Pacific while giving a green light to AMP's $13bn grab for the same business.

Because, no matter how you cut it, the fact is the decision rewards the indolent ahead of the prescient. It is AMP's utter failure to invest in any sort of innovative modern wealth management platform that means it can pursue its quest to acquire Axa-APH, while it is NAB's creation of a leading edge platform called Navigator that means it cannot.

"The ACCC concluded that because AMP does not own its own wrap platform it is constrained in its ability to compete aggressively," Samuel said in a statement released last night.

On the other hand, the ACCC concluded that:

"Allowing NAB and Axa to merge would significantly diminish incentives to compete for retail investment platforms used by investors that have complex financial needs."

The ACCC's decision to stand between Cameron Clyne's grab for glory in the wealth management space has come as a real shock to the market and to NAB most particularly.

But, given the ACCC's rules of engagement and the fact that the regulator's February statement of issues on the battle for Axa-APH highlighted wealth management broadly and wrap platforms specifically as a potential red light issue, perhaps that sense of surprise is a little unjustified.

The ACCC's pivotal test is whether a transaction might realistically result in a substantial lessening of competition.

Given the ACCC regards the so-called wrap platforms as the "gatekeeper" of the wealth management products and services offered by any bank or financial services provider, and therefore crucial to the broader dynamics of the market and to the specific financial metrics of the proposed transactions, then it would seem self-evident that the absorption of Axa-APH by NAB might well fail that test.

By that same logic, the fact that the AMP made no effort to enter the wrap space until its attempt to acquire Axa-APH means that its success with that effort would not result in a lessening of competition.

The really odd thing about this is that the ACCC, NAB and for that matter Axa are all unable to place a value on the business generated by the wrap platforms nor can they put a firm number on how many Australian investors have "complex financial needs".

The ACCC, for example, could provide no data on the size of the market it regards as important enough to block a $14bn transaction. All it could do last night was say that the investment by NAB and Axa in their respective platforms would imply a size of market material enough to justify rejection.

So, what does NAB do now?

Well, under its agreement with Axa-APH and its Paris-based parent, Axa SA, Clyne & Co have a six-week window in which to negotiate with the regulator subsequent to a rejection before their deal to acquire the Australian Axa business lapses.

Doubtless then NAB will make a beeline for Samuel tomorrow to discuss whether there are undertakings that could sate the regulator's concerns.

The $14bn question is exactly how that might be done.

I mean it would be easy for NAB to offer to sell Axa's still evolving and very expensive platform to AMP. But that would certainly undermine the financials at the heart of the deal.

The other option, given that negotiations prove fruitless, is to appeal this decision at the Administrative Appeals Tribunal or in the Federal Court.

It would seem an appeal is an option that was last night being seriously considered and that by-passing the AAT and going straight to the Federal Court might be NAB's preference at this stage.

What NAB does not understand is how the ACCC can come to the conclusion that the ownership of one, two or three wrap platforms restricts competition.

They maintain that the platforms are but a conduit for sophisticated financial planners to access investment options and that they are generally used by three different types of financial planners, the in-house operator, planners aligned with particular institutions (Axa, for example) and non-aligned planners. Most of those using NAB's Navigator are not aligned with the bank.