Britain's 'big four' weigh up chances for counter offer

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The Independent Online

Britain's largest banks will this week be weighing up whether they can get a possible counter-offer for Abbey National past the UK's competition authorities.

Britain's "big four" banks would like to add Abbey - the No 6 - to their empires. Abbey is the second-largest mortgage lender in the UK, but its larger rivals have held off from making a bid after Lloyds TSB was blocked from going through with an £18m deal to buy Abbey in 2001. The Competition Commission ruled at the time that the deal would have left the enlarged bank with too great a share of the personal and business current account markets.

The most likely bank to risk a wrangle with the commission is Royal Bank of Scotland. RBS has made it clear it would like to acquire Abbey to boost its position in the UK mortgage market. It would easily have the financial firepower to act quickly to make a counter-bid, even at the substantial premium it would have to offer to top Santander's agreed deal.

With a market capitalisation of more than £40bn, RBS, which bought NatWest in 2000, is four times the size of Abbey. Fred Goodwin, RBS's chief executive, has said he would not hesitate to ask investors for extra firepower if he finds an attractive bank to buy.

While Lloyds TSB is more stretched financially, interest could also come from this quarter, and it is understood that the bank will be carefully examining its options.

For Lloyds and RBS, encouragement has come from City analysts who claim that the competitive environment has been fundamentally altered by the creation of HBOS, which has has proved to be a powerful rival to the big four. Barclays and HSBC are also in a position to make an offer. It is understood Lloyds TSB at least does not believe the issues raised by the Competition Commission in 2001 have altered significantly.

An alternative bid could come from another foreign bank. Citigroup, the world's largest financial services group, looks the most likely. It is keen to establish a retail banking presence in the UK. Citigroup bought the investment banking business Salomon in the UK, and like Santander, it would not have to worry about falling foul of the competition regulators.