BoS 'in rival bid' for Abbey

The Bank of Scotland (BoS) is preparing to launch a £27bn merger offer for Abbey National, beating a rival bid by Lloyds TSB, it is reported in the Independent newspaper.

The paper said the Scottish bank is to make the offer without waiting for the outcome of the Office of Fair Trading (OFT) report into Wednesday's £19bn bid by Lloyds TSB for Abbey.

This is due by 23 February and experts are divided over whether competition authorities will allow the deal to go through.

The bid could come within two weeks, the paper said, if the OFT agrees to clear the Bank of Scotland's plans for Abbey before a deadline of 8 February.

'No foundation'

Sources in the Bank of Scotland dismissed as 'absolute nonsense' the report of a £27bn merger offer for Abbey.

"This story is without any foundation whatsover," said a spokesman for the BoS.

"Our position is that we will and are considering the implications of the Lloyds announcement and gauging reaction to it before we make a further statement," he added.

UK's second-largest bank

Lloyds has appealed to Abbey National shareholders to back its proposed merger which would create the UK's second largest bank, and allow cost savings of £900m a year to be achieved.

The terms of the deal, which would lead to the loss of 9,000 jobs and merger of 600 branches, are unchanged from those which the Abbey National board rejected last month as "inadequate and uncertain".

In reply, Abbey National, which favours a merger with Bank of Scotland, said it had arranged a meeting with Lloyds chiefs "to give Lloyds TSB an opportunity to explain its proposal".

Neither merger has yet received clearance from UK trade watchdogs.

International growth

Lloyds TSB said its bid offers Abbey shareholders "significantly greater" value than could be achieved by other options available to the former building society.

Peter Ellwood: "Platform for overseas expansion"

A joint Abbey/Lloyds company would be well placed to succeed in a sector which faces increasing numbers of mergers as banks struggle to attract customers and keep up with technological developments, the statement said.

"Further consolidation in UK financial services is inevitable," said Peter Ellwood Lloyds TSB's group chief executive.

"Lloyds TSB and Abbey National will be a leading player in UK retail financial services... whilst providing a stronger platform for overseas expansion."

Branch closures

The branch merger programme, which would not be implemented for at least two years after a merger, would affect outlets situated one quarter of a mile or less away from each other.

Lloyds TSB currently has 2,200 branches, and Abbey National 722.

Further savings would be made from combining head office operations, call centres and e-commerce operations, Lloyds said.

The retention of mortgage brands, including the Cheltenham & Gloucester name, would be reviewed following customer research.

Job cuts

While the deal would cost 9,000 of 100,000 jobs in the combined group, Lloyds claimed union support for the merger as "being in the best interests" of staff at both banks.

It is envisaged that the (job cuts) will be achieved with the minimal compulsory redundancies

Lloyds TSB statement

However, trade unionist point out that only one in-house trade union at Lloyds is in favour of the merger, while the main banking union Unifi and the Abbey National staff sssociation are not.

"It is envisaged that the (job cuts) will be achieved with the minimal compulsory redundancies," Wednesday's statement said.

Lloyds claimed that the experience of its merger with the TSB in 1995 demonstrated its ability to "add substantial value through in-market consolidation".

Moves including the merger of 340 branches allowed Lloyds TSB to reduce its expense base by £400m, the bank claims.

The bank's bid offers 1.5 Lloyds shares plus 260p in cash for every Abbey share.

The merged company would be led by Lloyds executives, with Maarten van der Bergh appointed chairman, and Mr Ellwood chief executive