HBOS calls in KPMG integrators to make £10bn Abbey bid add up

Jason Nisse
Sunday 12 September 2004 00:00

James Crosby, chief executive of HBOS, has hired a team of 30 integration experts from KPMG's transaction services arm to try to make the numbers work for a potential £10bn bid for Abbey National.

James Crosby, chief executive of HBOS, has hired a team of 30 integration experts from KPMG's transaction services arm to try to make the numbers work for a potential £10bn bid for Abbey National.

They are expected to report early this week, with Mr Crosby looking for up to £800m of annual savings and synergies to make his sums add up. Over 8,000 jobs could go to meet these targets. HBOS's board is due to meet this week to decide whether to proceed with an offer. Abbey has accepted an £8.1bn bid from Spanish bank Santander Central Hispano, though it said it would consider rival offers. HBOS's board will also consider a report by lawyers Allen & Overy into whether the competition authorities would allow HBOS to buy Abbey.

A banking source said the lawyers will report that an HBOS offer would almost certainly be referred to the Competition Commission and would be unlikely to be allowed to proceed without HBOS committing to substantial disposals.

"We are talking about them selling Intelligent Finance [the internet banking business] and Birmingham Midshires [the former building society]," said the banker.

Analysts at Bernstein & Co, the US research firm, have predicted that there are few remedies HBOS could envisage that would persuade the competition authorities to allow an Abbey takeover to proceed.

Mr Crosby asked KPMG, HBOS's auditor, to assess what savings could be made from a merger with Abbey last month. In the past couple of weeks this team has been beefed up, with around 30 KPMG people now working out of HBOS's Edinburgh headquarters. According to analysts at Citigroup, Mr Crosby is looking for annual savings of £770m. This would involve the loss of up to 8,300 jobs.

Both banks expect large savings from transferring Abbey's complex and inefficient IT systems to new platforms.

Santander has said that it envisages recouping savings of up to €450m (£305m) a year from Abbey, with up to 2,500 jobs expected to go.

If HBOS bought Abbey, it would also have to get rid of hundreds of leases on Abbey branches. Of Abbey's 741 outlets, 524 are within 400 metres of an HBOS branch. This would not create a windfall for HBOS, as Abbey sold its property in a sale and leaseback deal some time ago.

Santander will increase the pressure on HBOS to decide on a bid in the next few days by publishing its offer document. It is also expected to obtain competition clearance from the European Commission this week.

Last week the Spanish bank raised £1.25bn from selling half its holding in Royal Bank of Scotland. Its two directors on the board of the Scottish bank are also to step down.

The RBS sale has raised the prospect that Santander could raise its bid or add a cash element in response to any offer by HBOS. The Spanish bank refused to be drawn on whether it would sweeten its offer terms.

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