Market keeps watch after forex merger

By ELLEN READ and NZPA

The ANZ and National Banks have merged their New Zealand foreign exchange operations, creating a market heavyweight which they acknowledge will create "liquidity" issues for local forex trade.

The move follows the amalgamation of the banks' New Zealand operations after ANZ bought National Bank from Britain's Lloyds TSB last year for $5.7 billion.

"The reduction in market capacity is likely to mean it's harder to shift stuff and that the prices will be less advantageous to the people who might be making use of their services," said David Tripe, head of banking studies at Massey University.

The two banks merged their foreign exchange operations on June 28.

"It's bringing together two businesses as opposed to shrinking two into one," said John Body, head of foreign exchange for ANZ.

Tripe said it was too early to gauge the full implications but it was a potential area of concern.

ANZ and National Bank had probably "not been competing against each other particularly assiduously in the last little while" so any consequences could take some time to register.

The combined ANZ-National Bank operation accounts for 40 per cent to 50 per cent of the country's foreign exchange market.

Westpac is in third place with about 18 per cent share of foreign exchange deals - which are valued at more than $10 billion daily, says the Reserve Bank.

ANZ will have 30 dealing positions based in Auckland (the same as before the change) and the main dealing room will be in Wellington with about 60 people.

No foreign exchange jobs were lost in the merger.

Tripe said he was watching the situation closely, searching for signs of reduced liquidity and price effects.

"If you've got two big players no longer acting against one another and, in fact, effectively acting as a single unit, when there's a large order to come through it's that much harder to find counter-parties around the rest of the market to unload it to."

This could lead to more intra-day volatility and exaggerate both upward and downward moves.

However, he did not believe the impact on the kiwi would be lasting.

Westpac's chief currency dealer, Basil Payn, said his bank had not noticed any difference in market conditions.