View from City Road: Moment of truth for C&G and Lloyds

Cheltenham & Gloucester has finally come up with a scheme for its planned merger with Lloyds Bank that satisfies the law; whether it satisfies its own savers and borrowers is another thing. The society is deliberately keeping mum about what percentages of customers stand to get which payments, in the belief that media speculation on who might vote for what could influence the outcome.

There are, for instance, 375,000 borrowers who the courts rule cannot receive cash. On the face of it this is a deal-breaking problem, since borrowers need to approve the takeover by a simple majority if it is to happen at all. Some borrowers will also be savers and they will presumably vote in favour. But there seems little incentive for the rest other than C&G's assertion that Lloyds will be able to cut its mortgage rates. Andrew Longhurst, the chief executive, cannot promise this, however, since any hint of financial inducement for borrowers would contravene the court decision that they should not get any.

On the face of it there seems no reason why C&G mortgages under the Lloyds mantle should fall in price - after all, bank mortgages generally are not famous for being cheaper than society mortgages. We must just take Mr Longhurst's word for it. Seldom can such a large deal - pounds 1.8bn of it, involving 1.4 million customers - have hung on such an insubstantial assertion.

As for Lloyds, its senior management must be on tenterhooks. The C&G deal is no longer just another business opportunity for Lloyds; it is a necessity. With operating profits growth flat and little more good news to come from falling bad debt provisions, Lloyds, like all the other banks, desperately needs a new way to expand its business.

Deprived of their windfall, some C&G borrowers will vote no out of pique alone. Sir Brian Pitman, chief executive of Lloyds, will just have to pray that apathy among the majority outweighs them.