The $4.9 billion merger of ANZ and Suncorp’s banking division is dead after the competition regulator refused to grant its approval.

It’s a stunning blow for both companies, but more so for Suncorp, which has struggled under the weight of an underperforming banking division that it has been trying to find a home for in recent years.

ANZ also was keen to tap Suncorp’s exposure in the Queensland home loan market and would have increased its market share to above NAB and closer to the Commonwealth Bank and Westpac if the deal had gone through.

The ACCC decision may revive the long-proposed merger with Bendigo and Adelaide Bank or another second-tier bank, which was clearly a more desirable option for the regulator.

The ACCC said there was a realistic prospect of Suncorp Bank and Bendigo and Adelaide Bank merging and it knew that this was an option actively considered by the Queensland-based company.

It was because it assessed this was “sufficiently likely” to occur following the death of the ANZ merger that the ACCC felt it could reject the ANZ deal.

Suncorp chair Christine McLoughlin said it would support ANZ through the next step, which was a referral to the Australian Competition Tribunal.

She said she believed the tribunal would accept the merits of the case.

“When we embarked on this transaction, we were of the firm belief it was in the best interests of our customers, shareholders and employees and that would provide a net benefit to the Australian economy,” Ms McLoughlin said.

In its reasoning, the ACCC said the merger would have increased the likelihood of a “live and let live” approach to each other rather than competing strongly on price and innovation and quality of service.

It was also swayed by recent decisions among the banks to step away from aggressive promotions.

“If this market is truly competitive, we would not expect to see banks publicly flagging plans to reduce the competitiveness of their offerings,” ACCC deputy chair Mick Keogh said.

In its rejection, the ACCC said that under law it could not grant approval to a merger unless it was satisfied that the deal would not lessen competition, or that the likely public benefits would outweigh the likely public detriments.

“We are not satisfied that the acquisition is not likely to substantially lessen competition in the supply of home loans nationally, small to medium enterprise banking in Queensland and agribusiness banking in Queensland,” Mr Keogh said.

“These banking markets are critical to many homeowners and for Queensland businesses and farmers in particular. Competition being lessened in these markets will lead to customers getting a worse deal.”

He said the second-tier banks, such as Suncorp, were important competitors against the Big Four.

“The proposed acquisition of Suncorp Bank by ANZ would further entrench an oligopoly market structure that is concentrated with the four major banks dominating,” Mr Keogh said.

“It also limits the options for second-tier banks to combine and strengthen in a way that would create a greater competitive threat to the major banks.”

The ACCC said a lessening of competition in the home loan market would flow on to Australians with a mortgage. The home loan market is worth $2 trillion and Mr Keogh said that underlined how important competition was and why it should not be lessened.

However, the rejection was also likely to kill off a $25 million investment strategy in Queensland, which included $19 million on a disaster response centre in Brisbane and a regional hub for the company in Townsville.

ANZ chief executive Shayne Elliott said the bank was “naturally disappointed” and disagreed with the ACCC’s decision.

“We are closely reviewing the determination and will seek an independent decision through the avenues of review available to us,” he said.

“We believe the acquisition will improve competition, which will benefit Australian consumers, particularly in Queensland. All of the relevant markets are intensely competitive and will continue to be intensely competitive after the acquisition.

“Indeed, the acquisition will create a combined bank which is better equipped to respond to competitive pressures, and deliver significant public benefits, particularly in Queensland.”

This article first appeared in InQueensland and is republished here with permission