The climate for the acquisition of Abbey has changed since the Competition Commission intervened in 2001, and the time is now right for a take-over bid.
Two years ago we wrote that the UK’s Competition Commission had effectively scuppered any further bank consolidation amongst the major UK players when it disallowed Lloyds TSB’s proposed acquisition of Abbey National.
The situation is materially different now. One of the authorities’ main contentions, based on Abbey’s defence, was that the former building society was the sole strong challenger to the established big four, Lloyds TSB, Barclays Bank, HSBC Midland and Royal Bank of Scotland (RBoS). Yet, now HBOS, the merged Halifax and Bank of Scotland, as well as a fortified Alliance & Leicester, provide two credible challengers. And the changes to small business banking as a result of a government report, mean the argument that the price for banking services to that sector would rise is no longer true.
Meanwhile, the growth path for three of the big four is less than exciting. (HSBC can offset this through its emerging markets exposure plus its acquisition of Household, the US consumer finance business). A low interest rate environment means they are all desperate to cross-sell for more fee income – not an easy goal to accomplish, as the last few years have proved – and to increase income from non-retail areas. Costs can only be cut so far without affecting revenue, unless a merger takes place.
RBoS saw its shares fall after its latest results because it has now finished integrating NatWest and the market does not see where further growth will come from. Its US adventures, although profitable, are not substantial enough to provide a big boost to the bottom line. Lloyds TSB, under new chief executive Eric Daniels, is busy divesting Brazilian, French and New Zealand assets to concentrate on UK retail banking, having ended its flirtations with Continental partners. Barclays Bank can see future growth through credit cards and its Barclays Capital unit, but it needs to boost its retail operations as well – assuming it is not bought by Bank of America, which recently held talks with it.
Abbey’s first-half results were promising in that the sell-off of the wholesale bank is proceeding faster than expected. On the retail side, talk of a new proposal has yet to be finalised and put in place. The team at the top also stands to benefit substantially from a bid.
It is time one of the banks threw its hat into the ring: the competition situation is different and Abbey has already done a lot of the hard work for the acquirer.
