The court ruling overturning the Israel Competition Authority's decision against the merger between Mizrahi Tefahot Bank and Union Bank came as a total shock to the Competition Authority, which was totally unprepared for this unusual decision.
The very act of appealing to the Jerusalem Competition Tribunal by one of the parties in a rejected merger application unexpected; the Competition Authority is not used to such things. Such appeals against the Competition Authority director general's decisions not to approve mergers are rare events in themselves. If the director general turns down a request for a merger, the companies making the request do not bother to appeal in most cases, because the economic reason for the merger will dissipate by the time the legal proceeding is concluded, making an appeal pointless. The result is that most appeals reaching the Competition Tribunal are filed by third parties against decisions to approve mergers, not appeals against a refusal to approve a merger.
Even when such an appeal is filed, it is even rarer for the Competition Tribunal to grant the appeal in opposition to the Competition Authority's opinion.
In this case, however, it happened. The parties to the merger appealed against the director general's refusal to approve it to the Competition Tribunal, which dropped a four-ton bomb on the Competition Authority by granting the appeal and approving the merger.
The Competition Authority's ruling leaves no room for doubt. It did not accept the authority's opinion - period. It did not beat about the bush or attempt to compromise between the two sides' positions; it clearly rejected the Competition Authority's view that Union Bank was a unique generator of competition through the "reverse account" - the current account launched by Union Bank granting interest on accounts with a credit balance, as opposed to charging interest on accounts with a debit balance.
When Union Bank launched the special campaign for new customers under the name, "reverse account," it told customers, "All you have to do is transfer a monthly salary of over NIS 7,000, open a reverse account, and benefit from especially favorable: 3% interest on a credit balance and a variety of deposits, no payment of interest on debit balances, an exemption from current account charges (teller-executed transaction charges and online charges)." The Competition Authority hoped that this account would be a turning point for competition in the banking market.
This was one of the main reasons for the acting director general's rejection of the merger. He argued that if Union Bank was removed from the market, an important "competition generator" would be eliminated, thereby bolstering over-concentration of the large banks.
The Competition Tribunal did not accept this explanation as a sufficient reason for opposing the merger. The tribunal went even further with respect to the Competition Authority's concept of competition in the retail banking market, in essence ruling that the authority was not reading the market correctly. The tribunal ruled, "There are substantive problems with the definition of the market on which the acting director general based his analysis, and the analysis therefore cannot stand. The assessment of the customers who change banks, the main element in the opposition to the merger, is also questionable." The tribunal added that in view of the characteristics of Union Bank, its mode of activity, the difficulties facing it, and the absence of any substantial indication that the bank was influencing the other players in the market, there were no grounds for the Competition Authority's ruling that elimination of Union Bank would have a substantial negative impact on competition.
The ruling was decisive, clear, and significant - the Competition Authority's stance was rejected in toto.
The Competition Tribunal closed its ruling by complimenting the Competition Authority for its professionalism and expertise, saying that its views should be given weight. The tribunal made it clear, however, that this could not obscure the difficulties arising from its stance, which "do not concern marginal aspects of the acting director general's decision, but key elements in that decision."
It appears that these unequivocal statements by the Competition Tribunal are aimed at a single target: a future appeal. Through these statements, the Competition Tribunal is attempting to hermetically seal all loopholes liable to give the Competition Authority an opening for having the ruling reversed on appeal.
Although the Competition Authority has not yet officially announced that it will appeal, it will undoubtedly do so. It cannot accept the Competition Tribunal's ruling without a fight.
The tribunal's ruling can be read in two ways. The first is as an expression of the understanding that the way to combat the banking monopoly of the large banks is to allow the emergence of a strong third player, not two or three more weak ones. The other is the Competition Authority's view, that the tribunal has dealt a critical blow to the already weak competition in the banking market.
The soon-to-be-filed appeal will move this issue to the Supreme Court.
Published by Globes, Israel business news - en.globes.co.il - on December 1, 2019
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