HBOS raises stakes in battle for Abbey

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The Independent Online

HBOS turned up the heat on Santander Central Hispano yesterday by writing to the European Commission demanding that Abbey National's Spanish suitor be made to sever its ties with Royal Bank of Scotland should it be successful in its bid.

HBOS turned up the heat on Santander Central Hispano yesterday by writing to the European Commission demanding that Abbey National's Spanish suitor be made to sever its ties with Royal Bank of Scotland should it be successful in its bid.

Meanwhile, SCH's chairman, Emilio Botin, moved onto the next stage of his UK charm offensive, promising Abbey's union representatives that each member of staff would be given 100 SCH shares - worth more than £500 in total - should his company complete the deal.

Mr Botin also guaranteed that the number of job cuts would amount to 3,000 - about a third of the number anticipated if Abbey's biggest rival, HBOS, was to make a successful bid. He added that SCH expected to make cost savings of some €450m (£303m) within three years of its acquisition.

But HBOS - the UK's fifth-largest banking group, which is widely expected to make its own bid for Abbey over the coming weeks - said that any SCH deal should not be allowed to progress before the Spanish bank has unwound its cross-holdings and cross-directorships with RBS.

SCH and RBS, which are the first- and second-largest banking groups respectively in their domestic markets, share a close relationship, with both owning a small but significant equity stake in the other. Both groups also have senior management staff serving as non-executive directors on the other group's board.

SCH owns 5 per cent of RBS, while its chairman, Emilio Botin, and its head of European operations, Juan Inciarte, sit on the RBS board. RBS, whose chairman, Sir George Matthewson, sits on the SCH board, owns about 2.8 per cent of the Spanish bank, while RBS's secretary, Miller McLean, is a former vice-chairman of Banco Santander, owned by SCH.

HBOS is concerned that a successful bid by SCH would effectively leave bosses at RBS with a hand in the running of Abbey, Britain's sixth-largest bank and one of its main UK competitors. A spokesman for HBOS, said: "Firstly, we believe the cross-shareholding between SCH and RBS should be unwound as soon as possible if the acquisition by the Spanish bank is successful.

"Secondly, it's simply inconceivable that directors of one of the biggest banks in the country would sit on [the board of] a bank which owned one of the major challengers to the big four in the UK. We believe that at a very minimum, the cross-directorships should end forthwith, if SCH buys Abbey."

Since SCH first laid down its bid for Abbey a month ago, there has been growing speculation that, if successful, it may ask RBS to take a hand in the running of its new acquisition, through various outsourcing agreements. The spokesman said that he believed greater transparency was needed by all the parties involved with the transaction, arguing that RBS and SCH should make a statement to clarify that no such agreement would be struck in the case of an acquisition.

"We think that it would be remiss of us if we were not to ask these questions, and not to ask them publicly," he added. "I would be surprised if we were the only bank which harboured these concerns."

The European Commission is currently considering SCH's bid for Abbey. While it is unlikely to have any major competition issues with the deal, given SCH currently has no presence in the UK market, it may be concerned if it is convinced that RBS has too big a hand in the running of SCH.

SCH is the only company to have made a formal bid for Abbey. It is widely expected that HBOS and Lloyds TSB will make their own offers once SCH publishes its offer document next month. Any bid by UK companies is certain to be referred to the UK competition commission, which will result in there being a lengthy consultation period. SCH's offer for Abbey expires on 31 March next year, and the Spanish bank is believed unlikely to renew its bid if no conclusion has been reached by then.

SCH said it had no comment on HBOS's letter to the EC. But following his meeting with the unions yesterday, Mr Botin said: "I was delighted to meet the representatives of ANGU, listen to the issues they wished to raise, and tell them more about Grupo Santander and exciting plans for Abbey." SCH said that as part of its commitment to Abbey's UK staff, it had also written to the chairman of the company's pension fund trustees, promising to honour existing pensions agreements.

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