HBOS move could launch Abbey bid war

Merger would lead to massive job cuts - Bank believes it can clear Competition Commission hurdle
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HBOS confirmed yesterday it was considering launching a rival bid for Abbey National in a move which would be likely to lead to thousands of job losses and branch closures in the UK.

The announcement, which comes one week after Spain's Santander Central Hispano lodged an agreed £8.2bn offer for Abbey, could spark an all-out bidding war for the UK's number six lender among Britain's biggest banks.

Lloyds TSB, Barclays, Royal Bank of Scotland and HSBC will now be under intense pressure to assess whether they could also weigh into the battle. Citigroup, the mega US financial institution, which is understood to have made an informal approach to Abbey within the past year, could also be prompted to reconsider.

An HBOS spokesperson said: "HBOS is very much at the preliminary stages and no decisions have been taken. The process has a long way to go, and nothing could come of it."

HBOS, which is expected to make up its mind within the next few weeks, would not comment on what price it might offer for Abbey, but there were suggestions it might bid about £9bn, or 610p a share. That is a premium to Santander's mainly paper offer, which was valued on Friday at 550p a share, or £8.2bn.

A combination of HBOS and Abbey would bring together 85,000 employees and almost 2,000 branches. HBOS would be almost certain to cut heavy chunks out of both of those numbers and it could also abandon Abbey's name in favour if its own well-known brands, Halifax and Bank of Scotland.

Confirmation that HBOS was looking closely at making a bid for Abbey surprised many, who had thought James Crosby, the chief executive of HBOS, had given guidance that the regulatory hurdles to a major UK bank buying Abbey were too great. Unveiling half-year results last Tuesday, Mr Crosby said that for large banks: "The Competition Commission analysis is pretty copious and highlights there are real difficulties for anybody in that area."

All of the main high street banks would like to swallow Abbey to take advantage of large amounts of cost savings and revenue synergies. But they have held off from making a bid after an £18bn approach in 2001 by Lloyds TSB was blocked by the Competition Commission on the grounds that it would have concentrated too large a share of the personal and business current account market into the hands of one player.

Banking sources said Mr Crosby's comments about the competition authorities referred only to the "big four" banks of Lloyds TSB, Barclays, HSBC and RBS.

HBOS believes it can argue it is distinct from the big four, with a much smaller share of the current account market and a marketing strategy of offering much more competitive prices than this group. An HBOS bid for Abbey would have the biggest impact in mortgages, where the enlarged group would have 34 per cent of the market. That is much higher than the share of the current accounts Lloyds would have controlled if its bid for Abbey had succeeded.

But HBOS believes the Government is far more sanguine about how competitive the mortgage market is than the current account sector. Profit margins have been gradually falling in mortgages for some years, with some players having to take a loss on much of the new business they write because of the level of competition.

The decision on whether to bid or not will be tough for HBOS, because it is still likely to be referred to the Competition Commission for an inquiry that could take six months.

HBOS attempted yesterday to play down the likelihood of redundancies, saying it would not go ahead with a bid unless it was "stakeholder friendly".