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Co-operation between seven local banks

28. marts 2007

4/0120-0204-0040/ISA/FAB, JKM, KLC The Council Meeting 28 March 2007

On March 28th 2007 the Danish Competition Council decided that seven Danish banks: Møns Bank, Lokalbanken i Nordsjælland, Skælskør Bank, Lollands Bank, Vordingborg Bank, Totalbanken and Diba Bank, for several years, have violated the Competition Act by entering into an illegal agreement.

The case initiated in June 2006 when the Danish Competition Authority carried out dawn raids at the seven banks in question. (Møns Bank, Lokalbanken i Nordsjælland, Skælskør Bank, Lollands Bank, Vordingborg Bank, Totalbanken and Diba Bank.) Prior to that step, the Competition Authority had received a tip from a journalist. At the dawn raids it became clear that the 7 banks had entered into a formalized co-operation under the name of Lokalbanksamarbejdet.

On the basis of the material collected at the dawn raids, the Competition Council judged that some parts of the banks’ co-operation were illegal according to section 6 in the Competition Act. The infringements consist of three parts.

Firstly, the banks have entered into a geographical market sharing agreement. The objective of the agreement was that the seven banks would abstain from opening branches in the towns where the seven banks’ head offices were located. The seven towns in question are Stege, Hillerød, Skælskør, Nakskov, Vordingborg, Aarup and Næstved. If a bank failed to comply with this commitment, the intruding bank had to leave the co-operation.

The geographical market sharing agreement has already been enforced. Until December 2003, Håndværkerbanken (now Max Bank) participated in the co-operation. However, the bank opened a branch in Vordingborg, where the head office of Vordingborg Bank is located. Hence, Håndværkerbanken was expelled from the co-operation.

Secondly, the seven banks had agreed not to contact each others’ customers actively.

Geographical market sharing agreements as well as customer sharing are considered hardcore infringements of the Competition Act and, generally, have as their object to restrict competition. In this particular case, the banks were restrained from competing with each other by opening new branches and contacting each others customers.

Thirdly, the banks were parties of a concerted practice discussing confidential information of importance to their price and fee policy.

The Competition Authority has found no proof that the seven banks have more uniform prices than other banks. However, the exchange of information enables the banks to observe the policy pursued by the other banks. Hence, the uncertainty of each bank’s behaviour is reduced, and there is created a condition for competition between these seven banks which deviates from the normal conditions in the market.

The relevant market is defined as the retail banking market geographically defined as East and West Denmark, respectively. The seven banks have a total market share of 3 - 6 percent in East Denmark depending on which measures being used. As this market share coincides with a hardcore infringement, the Competition Council found that the competition restriction was appreciable.

If the market geographically was defined as national, the competition restriction would be appreciable, as well. In this case, it is an aggravating circumstance that the infringement is considered hardcore, that the party consists of seven banks with more than 150,000 customers, and that the violation has been going on for a considerable period of time. At the same time, the banks have a total market share of 1.4 – 2.7 percent nationwide.

The years prior to 2004 is not a part of the violation since the total turnover of the seven banks was less than the threshold value of 1 billion DKK, according to section 7 in the Competition Act.

The Competition Council has ordered the seven banks to terminate the illegal market sharing agreement and to cease exchanging information regarding their price and fee policy. The banks have lodged an appeal before the Competition Appeals Tribunal.