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Lloyds seeks new target

High street banking: Merged group starts looking for fresh acquisitions , while rival goes for fund manager

Financial Correspondent

Lloyds Bank and TSB unveiled details of their pounds 15bn merger yesterday, including pounds 350m of cost savings per year by 1997 - and immediatly started talking about the next possible acquisition.

Lloyds' shares soared 49p to 769p and TSB's shares closed 18p up at 368p as the City welcomed the banks' joint statement on projected cost savings. Some analysts suggested that the bank had implied that savings could potentially be even higher than forecast.

Lloyds and TSB hit out at speculation on job losses, urged unions to drop their opposition to the deal and reaffirmed the future of the branch network. They said they would keep TSB's merchant bank, Hill Samuel, and would allow TSB Scotland to remain registered in Edinburgh as a separate entity.

Sir Robin Ibbs, Lloyds' chairman and chairman-designate of the new bank, said it would "remain watchful" of further consolidation in the financial services sector. If a possible target added value and shared Lloyds' culture then "we would take it seriously".

The merged bank would generate surplus capital in a few years so it was not constrained by resources if a bid opportunity arose, said Sir Brian Pitman, Lloyds' chief executive. "The gaps between winners and losers is widening, not just in the UK but all over the world."

Sir Robin hit out at "alarmist figures" on job losses in the press while refusing to give any himself. "Clearly there will be a number of job reductions but the magnitude will depend on how the economy performs and the degree of success of this merger," he said. He said the vast majority of jub cuts would be by natural staff turnover, which currently stands at 6,000 a year for the combined bank. He said that by cutting out duplication there would be "one of everything" - one head office instead of two, one treasury operation, one branch technology system and so on.

Sir Robin said: "Any change can cause worries but in my experience people like to work for the winning team. The merger will be good for people all round and it will lead to better services and keener prices."

Although Lloyds will end up owning 70.4 per cent of the new bank following the merger, this did not mean Lloyds' operations would necessarily be chosen, he said. "It depends which is best."

Sir Robin also strongly defended windfall profits from share options that the TSB board members stand to make under the merger. He said that just because there had been a row about share options in the utilities, this should not "cast a shadow" across options as such. "There is an idea there is something disreputable about options but it is a recognised way of aligning the interests of shareholders with directors," he said.

"If the share price does well there is an opportunity for top management to participate. At the TSB there has been a remarkable improvement in profits over the last three years and the share price has reflected that. A share scheme should be used to reward the effort and skill involved."

Under the executive share option scheme, the TSB's chief executive, Peter Ellwood stands to make a paper profit of pounds 2m on his 838,893 share options, while TSB's chairman, Sir Nicholas Goodison, could make pounds 1.63m.

Sir Brian Pitman said the new bank would retain TSB's merchant bank, Hill Samuel, because of its fund management and private banking activities.

Sir Robin said the merger required an Act of Parliament which he hoped would go through "before the end of the year."

Bifu, the bank union, pledged yesterday to fight the merger, if necessary by challenging the move in Parliament. It believes up to 10,000 jobs and 500 branches are at risk.

Leif Mills, Bifu's general secretary, said: "It is already clear that thousands of jobs in head office departments, branches and subsidiary companies will go as a result of this merger.

"Just about the only people to benefit from this merger will be the top executives who will get a fat bounty for the destruction of the TSB, an historic bank that has traditional roots with working men and women and young people."