The Government has blocked Lloyds TSB’s £18 billion takeover bid for Abbey National.
The decision was taken by Patricia Hewitt, the trade and industry secretary, following a recommendation by the Competition Commission. The commission found that a merger would reduce competition for personal current accounts and the banking services market for small to medium-sized enterprises as the new group would have had a 30% share of the market.
Following the four month inquiry, the commission decided that a merger would have adverse effects in both markets, which could include higher prices to customers and reduced innovation. The ruling should also make further consolidation among the larger banks unlikely. The ‘big four’ banks ‘ HSBC, Royal Bank of Scotland, Lloyds, and Barclays ‘ may be pushed into looking at the possibility of acquisitions of some of the smaller UK lenders.
Kirsty Clay, spokesperson for Lloyds TSB, said: ‘The decision was obviously a disappointment, but it does not change our strategy. Our key focus is still in growth, and we are looking to take part in more acquisitions whether that be in smaller UK banks or abroad.’
Abbey National is now looking to consolidate its position as the fifth largest bank in the UK with more acquisitions of its own. Christina Mills, head of media relations at Abbey National, said: ‘It was not a surprise to us that it was rejected, but it was only a pre-conditional offer. We have been a serial acquirer, and we intend to attack the big four banks so we are not ruling out purchasing smaller mortgage banks ourselves.’
Other lenders have been following the merger closely and are conscious that the focus of attention is now likely to be switched to them. Paul Lockstone, head of corporate communications at Alliance & Leicester, said: ‘Our focus is very much on growing our own business and our own strategy, which is based on organic growth. But, if someone was to come to us with a proposition that would significantly boost our shareholder returns then we cannot say that we would rule anything out.’