Connected Research

Union policy research in the 21st century

Lloyds to be compelled to give up HBOS?

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This morning’s Times is carrying the story that Neelie Kroes, the EU’s Competition Commissioner, is seeking ‘draconian penalties’ on Lloyds as payback for the ‘state aid’ it has received in taking over the struggling HBOS Group last autumn – largely as an alternative to the nationalisation of HBOS.

A final decision has yet to be made but Kroes is believed to have rejected Lloyds’s compromise position that it would sell Cheltenham and Gloucester and make some limited disposals in Scotland (Halifax having taken over the Bank of Scotland some years previously). Lloyds is believed to be desperate to hang on to HBOS as an entity (or, apparently, at least a large part of it) and appears to be playing a long game given the impending installation of a new European Commission.

The Times story focuses on the state aid aspects of this case, warning of other decisions recently made by the Commission and other investigations underway into the government sponsored rescues of banks which took place last autumn and the concomitant liquidity assistance and guarantees, and this is clearly part of the background (though part of the story is also quite clearly political). However, it also remains true that the merged Lloyds-HBOS group has a one-third share of the UK market and that clearly contravenes competition rules (the merger could only be approved following special dispensation). Indeed, back in July, the Commission issued advice on the state aid aspects of restructuring aid to banks, reminding of the importance of the fundamentals of competition policy and advising of the desire to see as quick a return to viability as possible for the European banking sector.

In the telecoms context, the story is a useful reminder of the prevalence of competition rules in the light of the proposed joint venture of the UK interests of T-Mobile and Orange. If prevailing competition rules are to be reinstated as soon as possible in the European banking sector, then a joint venture in an industry whose very existence was much less threatened by the recession has no chance of proceeding where it carries with it such a large market share without a similarly large programme of disposals.

The story also provides a useful opportunity to remind ourselves that those who bear the heaviest costs of such disposals and the surrounding speculation and uncertainty in the corporate merger game are, first and foremost, the workers in the industry.

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Written by Calvin

16/09/2009 at 11:24 am

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