'Mega-bank' will face fair trade scrutiny

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The £12 billion Lloyds TSB-HBOS takeover may have been waived over competition hurdles, but the proposed "mega-bank" will still face fair trade scrutiny.

Prime Minister Gordon Brown gave Lloyds' chairman Sir Victor Blank the all-important go-ahead for the deal at a meeting on Monday.

If approved by shareholders, the new entity will have nearly a third of the UK mortgage market and almost a quarter of the UK's savings and current account deposits.

It will be UK's biggest bank by some distance, with around 3,000 branches - around 700 more than NatWest owner Royal Bank of Scotland and more than double those of HSBC.

Under consumer legislation, the Office of Fair Trading (OFT) has a mandate "to make markets work well for consumers", and has the power to investigate where markets are suspected of dishing out raw deals to customers. The organisation is already involved in lengthy legal action with the banking industry over whether a raft of bank charges are unfair.

There are already fears the new Lloyds TSB-HBOS group's dominant position will affect competition among lenders.

In a hard-hitting note, banking analyst James Hamilton at Numis Securities said: "We expect the deal to dramatically reduce competition for almost every product line in the UK, so increasing the long-term industry profitability."

Lloyds chairman Sir Victor Blank said he expected to be subject to the normal trade monitoring procedures, but was confident consumers would not be harmed.

"If there's abuse of market position the OFT would look carefully at what was going on," he said.

"But we think this is an incredibly competitive market place. We don't think there will be grounds for anyone to take a look at us."

Chancellor Alistair Darling said it was important to have a "robust competition regime" in the banking sector.

Defending the competition waiver obtained by Lloyds TSB, he cited financial stability, which "rather like national security, can trump competition concerns."

Under normal circumstances without such a waiver, the takeover proposal would have been looked at the by the OFT, who can decide whether to refer the matter to the Competition Commission (CC) for a full investigation.

In 2001, the CC blocked a takeover of Lloyds TSB and Abbey, saying it would have an "adverse impact on consumer choice".

Industry group The British Bankers' Association declined to comment on the implications the Lloyds-HBOS deal would have for competition.