Thursday, September 18, 2008

Merger of HBOS / Halifax and Lloyds TSB

In normal times, it is inconceivable that a British Bank would be allowed to merge to gain over 30% of the market share for mortgages and savings. However, given the state of the financial markets, the government had no option but to allow the merger to go ahead.

After the £12bn merger of Lloyds TSB and Halifax is completed, the new bank will have nearly 33% of the retail banking market. This places it well ahead of its rivals like Abbey and Nationwide, who have 10% of market share.

The last big British banking merger was in 2001 when Lloyds bid for Abbey National. However, in 2001, the Competition Commission blocked the merger on the grounds it would harm consumer interests.

Effect of Merger on Public

  • The increased market share will reduce competition in the long term. Lloyds TSB will be in a position to charge higher rates to mortgage customers.
  • Your halifax Savings are Safe. With 30% of the market, Lloyds / TSB / HBOS is safe. There is no need to withdraw money.
  • Bank Closures. The new firm is likely to rationalise its branches. There could be many job losses upto 40,000 job losses are feared.
  • For people with mortgages at the Halifax, your mortgage will not change until the end of your negotiated contract. At the end of your current mortgage term, you will have to get a new deal. This is likely to depend on market conditions. With uncertainty surrounding financial markets, mortgage rates are likely to be higher. Lloyds could also use its market power to set higher rates.

1 comment:

James said...

What kind of measures do you think the competition commission will be willing and able to take in the long term, after confidence has been restored and steady growth returns? Are there any comparable cases of the competition commission 'forcing' a large company apart?