Lloyds-Abbey merger blocked

July 10, 2001 Posted: 1112 GMT

LONDON (CNN) -- Banking group Lloyds TSB's $29 billion hostile takeover bid of Abbey National has been blocked by the British government.

Trade and Industry Secretary of State Patricia Hewitt said on Tuesday she had accepted advice from the Competition Commission and the Office of Fair Trading that the deal would operate against the public interest.

"The merger would be against the public interest and should be prohibited," Hewitt said. The two banks would have had excessive control over current accounts and the small business market, she added.

Abbey National should stay as a "source of competition to the big four banks," Hewitt said, referring to Lloyds, Royal Bank of Scotland (RBOS), Barclays (BARC) and HSBC (HBBA).

Lloyds (LLOY), Britain's third largest bank, first made a £20 billion unsolicited bid for rival Abbey (ANL), Britain's second-largest mortgage lender, in January.

The move by Hewitt kills off any chances of the UK's big banks making takeovers domestically.

There has been speculation in Australia that the country's biggest bank, National Australia Bank, is considering making a bid for Abbey in the wake of Lloyds failure to get its takeover approved.

The NAB gets about 41 percent of its profits from its businesses outside Australia, with the biggest share of that coming from its U.K operations. It already owns the Yorkshire Bank and Glasgow-based Clydesdale Bank, plus two banks in Ireland.

NAB chief executive Frank Cicutto has been keen to buy more financial assets in the U.K., either in the shape of a bank or building society. The bank has enough cash for an acquisition, following its sale of U.S.-based Michigan National Corp to ABN Amro last November.

Many analysts believe Lloyds will now set its sights on making acquisitions in Europe.

Lloyds said: "The financial services market in the UK is a highly competitive market. We remain firmly of the view that a combination of Lloyds TSB and Abbey National would not have impacted adversely on competition."

"With or without Abbey National... we will continue to focus on delivering value for our shareholders through organic growth and acquisitions."

Analyst Simon Willis at Charterhouse Securities the governments decision to block the deal came as "no surprise. But it is clear that this has important implications for British banking. Lloyds and the others are going to have to look to Europe."

Lloyds share price rose after the announcement by 2.7 percent to 686.25 pence, reflecting its potential for future European acquisitions, while Abbey National was up 1.2 percent at 1,294.3 pence.

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