Lloyds steps up battle for high-street dominance

Over-banked Britain: merger highlights nation-wide scrap for rich pickings in financial services

JOHN EISENHAMMER

Financial Editor

The battle for size in the fiercely competitive UK retail banking sector escalated sharply yesterday with the announcement of Lloyds' planned merger with the TSB.

The combined group will have over 3,000 branches and a workforce of 85,000, transforming it into the country's biggest retail banking conglomerate. Insiders warned of significant branch closures and job losses to reap the necessary efficiency gains from the Lloyds TSB Group plc, as it will be known.

The merger calculations are said to be based on an ambitious cost-savings target of pounds 2bn over several years, which would require anual savings in the order of pounds 400m.

The deal will give the six-member executive TSB board a potential pounds 10m in share-option profits and special dividend payments.

As the TSB share price rocketed, the board was showing an immediate pounds 7.4m profit last night. This is based on share options already exercisable, together with the expected proceeds of the special dividend of 68p a share, which will be worth pounds 1.8m to them.

The executives also have share options than can be exercised from next month until the end of the decade, which were showing a paper gain yesterday of a further pounds 2.6m. Sir Nicholas Goodison, TSB chairman, stands to collect almost pounds 2m, and Peter Ellwood, the chief executive, pounds 1.7m.

TSB shares rose 79p to 353p, and Lloyds rose by 21p to 726p, as the sector gave a mixed reaction to the potential competitive threat from a new banking giant.

Sir Brian Pitman, Lloyds' chief executive, has been issuing dire predictions about the way the UK banking industry must go. Over-capacity has been increasing pressure for job cuts and consolidation, as the big retail banks and building societies crowd one another's patches, seeking to turn themselves into retail financial services conglomerates offering lending, pensions, insurance, and investment and savings products. High street banks have cut more than 60,000 jobs in the past five years.

There was little doubt in Sir Brian's mind that size was essential for success. The broadest scope of outlets is needed to feed the increasingly varied range of financial products to customers. In particular, the chance to earn good profits in the mortgage lending business, where margins are under considerable pressure, is linked to achieving big volumes.

The Halifax-Leeds merger, and Abbey National's purchase of National & Provincial, point up that others have drawn similar conclusions. Lloyds' take-over of Cheltenham & Gloucester building society this year showed where Sir Brian's ambitions were directed.

Yesterday's announcement with the TSB intensifies the competitive heat on those players in the building society movement, notably the Woolwich and Alliance & Leicester, that aspire to the big financial services league, but have yet to divulge their strategies.

The driving force behind Lloyds' strategy is mortgages, which the bank wants to grow into its biggest product. The acquisition of C & G gave Lloyds some 6 per cent of the UK housing loan market; TSB will bring its share up to 9 per cent, behind Halifax-Leeds and Abbey National-N&P. Similarly, Lloyds wants the outlets and the increased customer base to strengthen its life business.

As a means to these ends, there is hardly a better strategic fit for Lloyds than the TSB, which, with only minimal corporate operations, is essentially a retail bank. Its geographical focus is in the north of England and Scotland, against Lloyds' southern bias. Lloyds has a more upmarket image, while TSB is very "studenty" and blue-collar.

Within the merged group, this offers considerable potential for branded marketing, which Sir Brian is known to be much interested in, with C & G as the main mortgage label, TSB for simple banking products, and Lloyds retaining the mantle of the more sophisticated service and products.

The comparative lack of overlap, and the fact the merger would make little difference to the highly sensitive small business lending market, are reasons why Lloyds stands more of a chance of escaping a referral to the Monopolies and Mergers Commission of the sort that terminated the ill-fated bid for Midland Bank in 1992.

But the merger still offers considerable scope for efficiency savings. Perhaps as many as 500 of the 3,000 branches will close, and the 90,000 combined workforce could drop by 20 per cent over several years. Equal scope for efficiency gains exists in the other big areas of fixed costs - the two head offices and investments in information technology. By bringing together cheque-clearing, processing and money-transmission mechanisms, Lloyds TSB could find substantial synergies.

For the TSB, the merger brings to an end a long period of prevarication. Too small to make its mark, it toyed with buying a building society, but never took the final step. However much it cut its costs, its underlying business struggled to gain momentum.

But there is a reward for effort for Mr Ellwood, TSB's chief executive, who, by landing the crucial job of integrating the dominant retail side of the business, looks well positioned to take over from Sir Brian as the head of Britain's planned banking leviathan.

Banking cutbacks

Job losses 1990-end '95

Barclays 21,000

Lloyds 15,000

Midland 9,000

NatWest 23,000

TSB 9,000

Branch closures 1974-94

1974 14,908

1984 14,058

1989 13,131

1994 10,724

Arts and Entertainment
TVShow's twee, safe facade smashed by ice cream melting scandal
News
newsVideo for No campaign was meant to get women voting
Arts and Entertainment
tv
News
A photo of Charles Belk being detained by police on Friday 22 August
news
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Sport
Alexis Sanchez celebrates after scoring his first goal for Arsenal in the Champions League qualifier against Besiktas
sportChilean's first goal for the club secures place in draw for Champions League group stages
Arts and Entertainment
Amis: 'The racial situation in the US is as bad as it’s been since the Civil War'
booksAuthor says he might come back across Atlantic after all
Extras
indybest
Life and Style
Google Doodle celebrates the 200th birthday of Irish writer Sheridan Le Fanu
tech
Arts and Entertainment
Vinyl demand: a factory making the old-style discs
musicManufacturers are struggling to keep up with the resurgence in vinyl
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - Risk - Banking - London - £350-£400

£350 - £400 per day: Orgtel: PMO Analyst - Risk - Banking - London - £350 - £4...

C# Developer (C#, ASP.NET Developer, SQL, MVC, WPF, Real-Time F

£40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...

C# Swift Payment Developer (C#, ASP.NET, .NET, MVC, Authorize.N

£45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...

DevOps Engineer - Linux, Shell, Bash, Solaris, UNIX, Salt-Stack

Negotiable: Harrington Starr: A fast growing Financial Services organisation b...

Day In a Page

Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone
Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

What is the appeal of Twitch?

Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

How bosses are making us work harder

As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
Manufacturers are struggling to keep up with the resurgence in vinyl records

Hard pressed: Resurgence in vinyl records

As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

A tale of two writers

Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
Could a later start to the school day be the most useful educational reform of all?

Should pupils get a lie in?

Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
Prepare for Jewish jokes – as Jewish comedians get their own festival

Prepare for Jewish jokes...

... as Jewish comedians get their own festival
SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

A dream come true for SJ Watson

Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
10 best cycling bags for commuters

10 best cycling bags for commuters

Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

Paul Scholes column

Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?