Rival banks cry foul at Lloyds' dominance after £12bn HBOS deal

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The Independent Online

Rival lenders have criticised the dominant position that Lloyds TSB will enjoy after its £12bn purchase of Halifax Bank of Scotland goes ahead.

Lloyds will have shares of up to a third in mortgages and the all-important current account market, creating a British superbank. The 232p-per-share deal will be announced today.

Lloyds' management will run the combined bank. Sir Victor Blank, the chairman, and Eric Daniels, chief executive, will keep the same jobs.

Lloyds is already the biggest bank for personal current accounts in the UK and the deal with HBOS will lead it to dominate the market. Lloyds will also have a 30 per cent share of UK mortgages, compared with about 10 per cent each for Abbey and Nationwide, the nearest rival to HBOS, the country's biggest home loan provider.

The Government is said to have assured Lloyds TSB that competition rules can be bypassed in the national interest in order to maintain financial stability. Big British bank mergers were effectively barred in 2001 when the Competition Commission vetoed Lloyds' hostile bid for Abbey National.

The Halifax merged with Bank of Scotland in 2001 to take on the dominant big four banks and its disappearance into Lloyds has raise concerns. HBOS has been viewed by the authorities as an important competitor in current accounts and small business banking.

Lloyds is wary of taking on HBOS's £680bn of assets as the economy heads into recession after regaining favour with investors by avoiding most of the credit-crunch blow-ups experienced by other banks. But it also sees the deal as a once-in-a-lifetime chance to gain massive scale in the UK. Lloyds and HBOS declined to comment.

Banking sources said Britain's other banks were resigned to accepting the deal, for the time being, to shore up confidence in the banking system. The plunging price of HBOS's shares had threatened to send Britain's biggest mortgage lender into bankruptcy.

Other banks are likely to demand assurances that Lloyds will reduce some of its market shares after the deal goes through. Some reductions may not be unwelcome for Lloyds. Analysts said it would probably not want 30 per cent of the mortgage market and could let loans run off.

Sources said banks already face competition from Northern Rock, whose state guarantee is attracting deposits from wary savers, even without the Government giving the nod to Lloyds' move to dominate the market for domestic banking.

Lawyers said bypassing competition rules might not be easy. The Government might have to use the legislation for the nationalisation of Northern Rock to enable the transfer or even pass fresh legislation in the name of the public interest. Decisions on competition questions go first to the Office of Fair Trading, which decides whether to refer the matter to the Competition Commission. The OFT has taken a hard line with banks with a series of rulings. Its action against overdraft charges infuriated Britain's lenders.

Lloyds TSB could try to head off the OFT by offering concessions, or it could wait for the watchdog to raise objections and work round them. But the OFT, whose core consideration is the interests of consumers, could wave the deal through on the grounds that HBOS would not exist if Lloyds did not buy it. A partner at a City law firm said: "The failing-firm defence is always a good argument... It has got a very good chance. The OFT is not supposed to take political considerations into account, but of course it will do."

Lloyds would, effectively, pick up from where it left off before the Abbey deal was overruled. Lloyds had relied on takeovers, including TSB and Cheltenham & Gloucester, to cut costs before the authorities called a halt.