• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

An Analysis of the Proposed Merger Between Lloyds TSB Group Plc and Abbey National Plc.

Extracts from this document...


An Analysis of the Proposed Merger Between Lloyds TSB Group Plc and Abbey National Plc In 2001 the secretary of state referred the proposed acquisition of Abbey National Plc by Lloyds TSB Group Competition Commission for investigation to decide whether the merger was deemed to act for or against the public interest. Lloyds TSB has for many years been one of the four leading clearing banks in the UK along with Barclays PLC, HSBC plc and Royal Bank of Scotland plc/National Westminster Bank plc, which make up the 'big four'. Lloyds has substantially increased in size and diversity of activities in the last six years as a result of other mergers, including that of TSB. Abbey National was the first building society to convert from mutual to public company limited company (plc) status. It has since developed into a full service retail and wholesale bank with 15 million customers in 2000, and is now the fifth largest banking group incorporated in the UK in terms of total assets. The proposed horizontal merger between Lloyds and Abbey National qualified for investigation by the CC as it satisfied the Assets Test. Abbey National had total gross assets at 31 December 2000 of �204 billion, which exceeds the �70 million threshold set for the assets test. The share of supply test was excluded from consideration. The main markets to be investigated were; (i) markets for financial products sold to personal customers, in particular personal current accounts (PCA's) and (ii) markets for financial products sold to small and medium sized enterprises (SME's). The possible effects this proposed merger would have on these markets, as well as the overall effects of the merger on the public shall be considered. The merger's largest effects are likely to be seen in the PCA market. This market is of particular importance as PCA's are also 'gateways' through which suppliers can sell other financial products. ...read more.


The removal of Abbey National would lead to a reduction in competition in the PCA market than would otherwise exist. This reduction in competition would have adverse effects in the form of higher prices (higher fees and overdraft rates, and lower interest on credit balances) and a loss of innovation. Lloyds argued that Abbey National's role in the competitive process was not of great significance and that its removal would not act against the public interest. It was argued that Abbey National is not a 'maverick' player or a price leader and that it was concentrating on other markets and had lost focus on the PCA market. Halifax on the other hand could provide vigorous competition in the PCA market and could realistically prevent the merged firm from abusing their market power. The view could be taken that changing conditions in the PCA market, such as advances in technology, new entry, the introduction of enhanced services and an increase rate of switching is facilitating the emergence of firms that could potentially pose a threat to the big four. For example, new online banks that have lower overhead costs can afford to offer better rates, which could win them a larger share of the market, leading to more price competition. However, at the moment it seems that customers prefer established banks, which offer Internet banking as part of a full range of services. Therefore this sort of competition may be insufficient to constrain the anti-competitive policies of the big four. In terms of the savings and mortgage markets, the proposed merger would not act against the public interest. There are far more suppliers of savings products than of PCAs and growth and switching is much easier. The market is therefore perfectly competitive and would not face the same problems of concentrated market power if the merger went ahead. Under perfect competition, the firm will produce at the bottom of their average cost curves and the price is given where the demand equals the marginal cost, closer to the Pareto optimum. ...read more.


It is difficult to say whether efficiency gains will be passed on, however, due to their strong market position, I do not think that Lloyds have a great incentive to pass on the efficiency gains in lower prices. * The merger would have an adverse effect on consumer choice and innovation. I would agree with this as it is clear that certain products offered by Abbey National will not be available once the merger has taken place. Losing Abbey National as an independent competitor, would also be likely to lead to a decrease in innovation. Recommendation The Commission concluded that the merger between Lloyds TSB and Abbey National would act against the public interest. Prohibiting the merger is the only remedy capable of fully addressing the adverse effects associated with the merger. I would agree with the Commissions recommendation as it seems that the merger would certainly lead to less competition in both the PCA and SME markets, resulting in adverse effects on the public. However, subsequent changes to the banking market must also be taken into consideration when making a judgement on this decision taken in 2001. The most notable change is that Halifax has merged with bank of Scotland to form HBOS. The possibility of this merger taking place was considered in the Commissions report but its effect on the PCA market was expected to be small. It was not expected that synergies gained from the merger would be used to fund a more competitive stance in the PCA market. I would argue that the Commission underestimated the impact that the HBOS merger would have on competition and market share, particularly in the PCA market. The HBOS merge has created a fifth force that has the necessary network and customer base to pose aggressive competition to the big four. In hindsight, allowing the Lloyds/Abbey National merger may not have acted against the public interest, given the heightened competition created by the HBOS merger. The merger could be re-assessed, taking these recent changes to the market into consideration. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. PEST and competitive analysis facing by confectionery organisations

    and brands that bring the world of delight and a splash of colour on a grey day." This lets the customers know if they are getting value for money. Also, that the business has reliability, quality and speed of services This lets the shareholders know that Cadburys are going to

  2. Toyota Motor Company Limited

    have knowledge of the British market system and are building their customer and loyalty base. On the other hand Toyota is trying to adopt the market share in Europe. Toyota as a multinational enterprise has already launched its product to the online market and is currently mature stage of online product cycle.

  1. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    and productive opportunities. Burnett et al. (1998) examines junk bond (i.e. high-yield) characteristics and behaviour by analysing the influence of economic cycles and periods of reduced liquidity on the behaviour of junk bonds. Of particular interest in this article is the regression of junk and investment grade bond returns against Treasury-bond returns (as a measure of long-term interest rates)

  2. Causes of the Great Depression

    economy was producing, too poor in many cases to buy even the adequate food and shelter for themselves. As long as corporations had continued to expand their capital facilities (their factories, warehouses, heavy equipment, and other investments), the economy had flourished.

  1. Chinese car market overview. Citroen case study

    of auto parts and components from the current 80 percent to 40-50 percent, while complete vehicle plants will turn to global purchase. At that time, China's automobile parts industry will be fully open to the outside world in terms of capital market, market, localization and international standards.

  2. Use game theory to analyze an oligopoly competition of two great rivals, Wal-Mart and ...

    ( leave this part blank please, that I will fill in the relative statistics and analysis later) Digitalization Wal-Mart was a cost advance competitor. Despite far location and low price strategy, the high efficiency generated by Wal-Mart's high-tech information system and efficient usage of retailing economics of scales are among its advantages.

  1. Bellway Plc is a holding company with subsidiaries; its main subsidiary company is Bellway ...

    Bellway's Strategy Business function Strategy Corporate Organic Growth To deliver substantial increases in turnover and improve shareholder value. Business Wide geographical coverage To create a defence against regional variances in the housing market and reduce the vulnerability of local price fluctuation impact.

  2. Review of Strong Interest Inventory.

    It administered in 50 occupations (48 female-male paired samples, 2 single-gender samples). Median sample size for these criterion groups was 250, with fewer than 200 respondents in 8 groups. General Reference Sample (GRS) consists of random samples of 200 from 90 criterion group samples.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work