Lloyds set to exploit its strength amid banking turmoil with bid for Dresdner

Click to follow
The Independent Online

Lloyds TSB, which has emerged comparatively intact from the recent turmoil in the banking sector, is reportedly working on plans to acquire the German Dresdner Bank from its parent, the insurance giant Allianz.

Lloyds may offer its Scottish Widows life assurance arm to Allianz as part of a deal to acquire Dresdner's retail operations, which have been recently valued by analysts at around £6bn. Allianz has already declared its intention to spin off Dresdner, and to sell the Dresdner Kleinwort investment bank separately.

In February, Lloyds TSB's chief executive, Eric Daniels, said that Lloyds was considering acquisition "opportunities". Dresdner would add 900 branches in continental Europe to the 2,000 that Lloyds TSB has in Britain.

The speculation about a move on Dresdner follows earlier reports that Mr Daniels and Lloyds' chairman, Victor Blank, were keen on buying the German Postbank, an £8bn retail banking network, as well as Citigroup's German operation.

If Lloyds decides to take the talks further it may find itself in competition with Commerzbank and the Spanish lender Santander. Over the weekend Santander, which owns Abbey National and was once a rumoured predator of Alliance & Leicester, confirmed that it too was a potential beneficiary of the restructuring going on in the banking industry after the credit crunch. Santander forecast that profit will surpass €10bn (£8bn) in 2008, a record, as growth in Brazil and elsewhere in Latin America offsets an economic slowdown in its home market.

Alfredo Saenz, Santander's chief executive, said: "Germany interests us very much. We get many offers. More than things that come from our side, things get offered to us. It's our obligation to always be alert to opportunities that present themselves."

In contrast to most of its peers, Lloyds has not had to suffer large write-offs related to sub-prime investments or seek a rights issue or other recapitalisation. Lloyds' management may feel that banking assets have fallen so sharply on declining fortunes and valuations across the financial services sector that its relative strength can be leveraged to the group's long-term advantage. However many investors will worry about the ambition of some of the plans, and might urge the bank's management to maintain its strong balance sheet. Lloyds TSB group has market capitalisation of £19bn.

Meanwhile the Financial Services Authority is said to be ready to drop its investigation into apparent manipulation of HBOS's share price when it collapsed by 17 per cent on one day in March. While the watchdog is thought to believe that market abuse lay behind the gyrations, it has insufficient evidence to take action. HBOS described the speculation as "malicious" at the time.

New FSA rules have come into force obliging short-sellers to disclose their trading positions in companies which are in the middle of rights issues. HBOS, which is currently asking shareholders for £4bn, saw its shares finish close to its 275p rights issue price on Friday, despite the new guidelines.