Ruling Expected in Lloyds’ Bid for Abbey

Bloomberg News

LONDON — Britain’s Competition Commission is expected to report soon the results of an almost four-month inquiry into whether Lloyds TSB Group PLC’s bid to acquire Abbey National PLC is a competitive threat to British banking.

Lloyds has been trying to acquire Abbey for some time and is offering $27.3 billion for Britain’s No. 2 mortgage bank. If the deal goes ahead, the combined bank would control some 27% of all checking and current accounts in Britain. That is why the Department of Trade and Industry asked the Competition Commission to examine the deal. Abbey has balked at Lloyds’ unsolicited bids to take it over and at one stage had entered merger discussions with Bank of Scotland. Those talks ended in March.

The four-person team conducting the inquiry, led by Denise Kingsmill, will present its findings to the newly appointed head of the Department of Trade and Industry , Patricia Hewitt today. The details will be made public in the coming weeks.

Ms. Kingsmill may ask Lloyds TSB to sell branches or units, such as Abbey National’s Internet bank or its own Cheltenham & Gloucester mortgage business. The government typically opposes transactions that would give an enlarged company more than one-fourth of a given market.

Analysts have said some of the suggested remedies are either impractical or would do little to enhance competition. Many analysts and investors said they expect the proposal to be blocked, or for Lloyds TSB to resist any suggestions that result in losing customers. “There may be too many rules and regulations that may force Lloyds TSB to pull away,” said Steven Evans, a money manager at Deutsche Bank AG’s fund unit, which owns shares of Abbey National and Lloyds TSB.

On Monday, Abbey National’s shares had their biggest decline in three months over concerns that regulators will nix the deal, dropping some 6.5% during trading. Shares of Lloyds TSB declined 4.4% during Monday’s session.

“There’s about a 70% chance that it gets blocked,” said Deutsche Bank’s Mr. Evans. Abbey has done a good job defending itself” and the share decline may be short-lived, he said. Lloyds TSB’s approach helped scuttle merger discussions between Abbey National and Bank of Scotland, which later agreed to merge with Halifax Group PLC.

A red light from regulators would limit Lloyds TSB’s opportunities to expand through acquisition in the United Kingdom and may accelerate the company’s efforts to buy a rival abroad, analysts and investors said. “They’d face a big dilemma,” said Mr. Evans.