Abbey shares lifted by prospect of bidding battle

Shares in Abbey National climbed 3 per cent yesterday on raised hopes in the City that a full-scale bidding battle would break out for the UK's sixth-biggest bank after HBOS confirmed at the weekend that it might table an offer.

However, the consensus among competition lawyers was that while HBOS would be able to get a deal passed by the Competition Commission, the "big four" might have difficulty persuading the body that their offers would not hand them too large a share of the retail banking market.

Abbey recommended an £8.2bn bid last week for its business from Spain's Santander Central Hispano. All Britain's largest banks would like to challenge the deal and acquire Abbey themselves because the move would reap huge cost savings and revenue synergies. They have held off after Lloyds TSB was blocked from acquiring its smaller rival in 2001 by the commission on the grounds that it would have given the group too large a share of the personal and business current account market. In contrast, a tie-up between HBOS and Abbey would lead to a consolidation of the mortgage market, with the enlarged group controlling 34 per cent of total home loans.

But competition experts said the development would not be as problematic because mortgages are seen as being fiercely competitive in the UK, while there is little choice between different current account offerings on the high street. Chris Bright, at Shearman and Sterling, said: "The mortgage market is very competitive, with the market shares moving around."

HBOS, Britain's fourth-biggest bank by market capitalisation, has been keen to position itself as separate from the "big four": Lloyds, Barclays, Royal Bank of Scotland and HSBC. If it does go ahead with an offer for Abbey, it will argue that it has already challenged this group by offering consumers better deals in mortgages, current accounts and business accounts to take market share away from them.

There is also a view that the big four could still make their own offers for Abbey by making a case that the entire retail banking market has changed since the Lloyds/Abbey ruling, when the commission said it wanted the smaller bank to remain independent as a challenge to the big four.

One of Abbey's shareholders said: "Abbey is much weaker now, making it less of a competitor. The idea that [Abbey] would be given to a foreign bank without the domestic players being able to have a go would be very worrying."