Member Article

Lloyds / HBOS Merger Cleared

With Watson Burton LLP Law Firm

The Secretary of State for Business, Enterprise and Regulatory Reform (Secretary of State), will not refer the acquisition of HBOS by Lloyds TSB to the Competition Commission. The decision was made despite the Office of Fair Trading’s (OFT) finding that there is a realistic prospect that the anticipated merger will result in substantial lessening of competition in relation to personal current accounts, banking services for small and medium sized businesses and mortgages.

The decision came following an announcement earlier this year that HBOS and Lloyds had reached an agreement on the terms of the acquisition. The deal was conditional on it being established that the merger would not be referred to the Competition Commission and that there would be no successful challenge to the non-referral decision before the Competition Appeals Tribunal.

An intervention notice was issued by the Secretary of State under the Enterprise Act 2002 (the Act), on the basis that a relevant merger situation had been created by the proposed deal and that a public interest consideration was relevant to the merger. The public interest consideration contained in the notice was the stability of the UK financial system; a consideration which was not at the time of the notice a relevant public interest consideration specified in the Act.

Consequently, the Secretary of State exercised his statutory power to add financial stability to the list of public interest considerations, and the Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2008 (the Order), which specifies ‘the interest of maintaining the stability of the UK financial system’ as a relevant public interest consideration, came into force on 24th October 2008.

In accordance with the Secretary of State’s intervention notice, the OFT was required to report on whether the merger was expected to result in a substantial lessening of competition in any UK markets. Despite the OFT’s advice that that merger will result in lessening of competition at both a national and local level, the Secretary of State concluded that the stability of the UK financial system justifies the anti-competitive outcome identified by the OFT and that the public interest is best served by clearing the merger.

The Secretary of State said: “I recognise that there are concerns about the effects of the possible merger on competition, as set out in the OFT report. I am asking the OFT to continue to keep the relevant markets under review in order to protect the interests of UK customers and the British economy.”

If you have any comments or questions about this article or any competition law matters, please contact Alison Scrafton of Watson Burton LLP at alison.scrafton@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .