M&S faces OFT inquiry into HSBC deal

Banking giant's takeover of store-card business to be scrutinised by watchdog. But is worse to come? asks Clayton Hirst
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The Independent Online

The Office of Fair Trading has launched a formal competition investigation into HSBC's £763m takeover of Marks & Spencer's store-card business.

The Office of Fair Trading has launched a formal competition investigation into HSBC's £763m takeover of Marks & Spencer's store-card business.

The probe will be a blow to HSBC, which had hoped that it might escape the full scrutiny of the competition watchdog.

Neither the OFT nor HSBC would comment. But well-placed sources said that the OFT started a formal investigation earlier this month. Officials at the OFT decided to scrutinise the deal because it would make HSBC the country's second largest store-card provider behind GE Consumer Finance.

HSBC's deal, due to complete at the end of the year, will see it buy 2.7 million M&S cardholders. The bank also provides store cards to John Lewis and with the M&S deal, HSBC will control approximately 40 per cent of the market.

The OFT is unlikely to allow the deal to go though without any changes. Sources said that, at best, HSBC will be forced to agree to a series of "behavioural remedies" to ensure that it doesn't stifle future competition in the market.

However, HSBC also faces the possibility that the OFT may refer the deal to the Competition Commission for a more detailed investigation. This would be a major blow to the bank as the inquiry would take months to complete and HSBC could face a tougher set of conditions attached to its deal.

Some competition experts believe that the OFT will take this step as the Commission is five months into a two-year investigation into the store-card market.

The average interest rate on a store card is 25.2 per cent, some 10 percentage points above the typical APR on a credit card. The Commission is investigating whether the high rates are due to the limited competition in the market. HSBC's acquisition of M&S card business will concentrate some 90 per cent of the market in the hands of just two companies.

The Commission will publish its so-called "issues statement" on the investigation next week. This will highlight the main subjects for scrutiny. The Commission is expected to pay particular attention to the deals retailers sign with card providers.

However, the Commission has been criticised for focusing too narrowly on store cards. Ashley Holmes, the head of legal affairs of the Finance & Leasing Association, said: "What exactly does the Competition Commission define as the market? They should widen their current store-card inquiry to include credit cards. You cannot focus on one in isolation."

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