Lloyds TSB, HBOS And You

Posted on: 18 September 2008 by Gareth Hargreaves

How the bank merger could impact on you.

Lloyds TSB and HBOS have announced that they have reached agreement on the terms of a recommended takeover by Lloyds TSB of HBOS.

Under the terms of the acquisition, HBOS Shareholders will receive 0.83 Lloyds TSB Shares for every 1 HBOS Share. The offer values HBOS at £12.2 billion.

The merger will create the UK's biggest financial services group. Sir Victor Blank, Chairman of Lloyds TSB, called this "a good deal for customers and shareholders." But will such a banking behemoth, dealing with 40 per cent of UK current accounts, really be good for consumers?

The Government is encouraging the merger, to bring stability to a financial market in apparent meltdown, scorch any chance of HBOS collapsing, and boost confidence among customers and investors.

However the new 'super bank' will inevitably reduce choice and competition on the high street.

It could be "the financial equivalent of the rise of Starbucks", according to Kevin Mountford, head of banking at moneysupermarket.com.

"The Santander takeover of A&L, Lloyds' buyout of HBOS and more frequent building society mergers means we are seeing a reduction in diversity. Even when the brands remain, giving the illusion of choice, the inevitable merging of back-office systems means products will become increasingly homogenous and underwriting criteria will be become centrally controlled."

Economies of scale mean the 'super bank' is likely to shed thousands of jobs across the UK.

So are your savings safe? If you have money in both Lloyds and Halifax or another HBOS bank or building society, will you still be covered by the Financial Services Compensation Scheme? This guarantees your savings up to £35,000 in the event of a British bank group collapsing, but if your combined savings add up to more than this within the new 'super bank', will the scheme still cover both brands separately or treat them as one?

"Given the authorities' keenness to allow this merger despite the reduction in competition and the ensuing job losses, it is highly likely that the FSCS will be allowed to cover large deposits in both Lloyds TSB and HBOS," says Mountford.

The merger may mean much less choice, and reduced returns, for savers.

Michelle Slade, analyst at Moneyfacts.co.uk, explains, "Cheltenham & Gloucester and Lloyds TSB do not really actively compete in the savings market and their rates are far less competitive than the HBOS brands. It is therefore possible that the consolidated company will greatly reduce the number of brands and products compared to what the existing companies currently offer."

"As more and more companies enter into mergers, we inevitably start to worry about a lack of consumer choice. If one provider has a major hold in any aspect of a market, it results in consumers being worse off."

Nearly a third of the UK mortgage market would be in the hands of the consolidated company, which would include Lloyds, Cheltenham & Gloucester, Halifax, Bank of Scotland, BM Solutions and Intelligent Finance. How many of these will survive the merger?

"By keeping at least the majority of the current brands, the new group will likely maintain a hold over their mortgage market share," believes Slade. "Halifax and Cheltenham & Gloucester are both major and well known brands in the UK and it is unlikely that these brands will disappear. It is likely that each brand will maintain its presence and serve its own niche within the mortgage market."

"Obviously if some of these disappear, customer choice and competition will be eroded, which can only be to the detriment of borrowers," says Louise Coming, head of mortgages at moneysupermarket.com.

The impact will be worst on those with a low credit score.

"Lloyds have always run a very conservative ship and I have no doubt the merged operation will have a diminished appetite for higher risk specialist lending. This could leave borrowers without a squeaky clean credit rating or a large deposit without a hope of being accepted by the new 'super bank'. Therefore, the slightly riskier part of the housing market populated by first time buyers and sub prime borrowers is set to stagnate even further, which won't be good for the market as a whole."

"On a positive note, there is no doubt consumer trust in the mortgage industry is extremely fragile, and the merger could go some way to restoring consumer confidence."

If you are paying a mortgage the merger should not affect you immediately, although those looking to re-mortgage in future will perhaps find their options more limited.

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