The emergence of this new banking giant is forcing an urgent rethink right across the financial services sector, as banks, building societies and insurers accelerate plans for cost cutting and acquisitions.
The Banking Insurance and Finance Union warns that 5,000 to 10,000 jobs will go over the next few years as a result of the deal. Some City analysts think that even more - up to 20,000 - will go over the next five years. The estimated pounds 15bn market value of Lloyds TSB is reached only on the expectation of a massive pounds 3bn gain from substantial cost cutting and new earnings growth. Lloyds' current market capitalisation is pounds 9bn, that of TSB pounds 4bn. With pounds 1bn being handed back to shareholders in the form of the special dividend under the merger terms, a pounds 3bn jump in value is being factored in by advisers.
Barclays and NatWest now face stark choices on where they go from here. Both are heavily committed to the big corporate sector, where Lloyds is a medium player and TSB nowhere. Increasingly they deal with their big corporate clients through their investment bnaking arms, and these operations have required huge investments.
The question is whether they can succeed in the personal sector and the corporate sector at the same time. They are competing with ever larger personal financial groups like Lloyds TSB, as well as pure investment banks like the giant Goldman Sachs and Morgan Stanley.
There is also a question mark over Abbey National. It was the first building society to convert to bank status in 1989, and is now buying National & Provincial. Even so, analysts question whether it is big enough, or whether it might in turn become a bid target, a predicament also faced by the Woolwich and Alliance & Leicester.
Similar problems confront the Bank of Scotland and Royal Bank of Scotland. Both could easily be snapped up by, say HSBC. Analysts reckon Bank of Scotland would cost around pounds 3.5bn valued on the same basis as TSB in the Lloyds merger, while Royal Bank would cost around pounds 4bn or more. There would, however, be strong protests from Scottish public opinion if their banks were acquired by one from London.
The insurance companies could also enter the fray. Many have examined the idea of buying a bank network through which to sell their products. BAT, the tobacco and financial services conglomerate, always had its eye on TSB, and may look elsewhere in the sector now that it has been thwarted.
Standard Life already owns one-third of the Bank of Scotland. This is seen as an obstacle to any potential bidder for the bank - but may also tempt the insurer to make a full bid.Reuse content