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Tuesday, 10 July, 2001, 05:37 GMT 06:37 UK
Minister 'to block Lloyds/Abbey deal'
Abbey National, Lloyds TSB, Patricia Hewitt graphic
The government is expected announce on Tuesday a decision to block Lloyds TSB's 18bn takeover bid for Abbey National, which would have created Britain's second largest bank.

Patricia Hewitt, trade and industry secretary, is expected to follow advice that the deal would harm competition on the High Street.

The combined company would have controlled about a quarter of current accounts in the UK.

The decision, when it comes, will delight unions, which believe the deal would cost significantly more than the 9,000 jobs Lloyds has estimated.

It will also offer consolation to Abbey directors, who have fought the takeover.

But it would not secure Abbey's future as an independent bank, City analysts believe.

National Australia Bank is said to be interested in entering a bid, after selling National Michigan Bank in March for a profit of 1.6bn Australian dollars.

"NAB is sitting on a cash pile, and could well be looking to spend it on boosting its UK operations," a leading City banking analyst told BBC News Online.

NAB, Australia's largest bank and owner of UK banks the Clydesdale and Yorkshire banks, has declined to comment on the rumours.

Watchdogs' report

Ms Hewitt has been advised to block the Lloyds/Abbey merger by trade watchdogs at the Competition Commission, who a month ago finalised a four-month probe into the deal, according to weekend press reports.

Her decision also follows an investigation into the banking sector by Don Cruickshank, chairman of the London Stock Exchange, which warned that major UK banks have a have a monopoly in the small business market, restricting price competition for customers.

The report raised widespread concerns over the wisdom of allowing further consolidation among major UK banks.

Major blow

Refusal would come as a major blow to Lloyds TSB, which while a profitable operation, has been thwarted in efforts to find a partner, and create a platform for future growth.

The bank estimated it could save annual costs of almost 1bn through the Abbey merger.

But the combined group would have boasted at least 27% of UK current accounts, a total which many observers said raised concerns of market domination.

Lloyds may now seek a Continental partner, or look to take over one of the smaller independent UK banks, a City analyst told BBC News Online.

"The problem with a Continental deal is that banks on the Continent are generally far less profitable, so a merger might be difficult for Lloyds shareholders to swallow.

"The problem with a UK merger is that many of the remaining independent banks, such as Alliance & Leicester, are in fact demutualised building societies, subject to protection from hostile takeovers.

"Thus any merger would have to be agreed on a friendly basis, which may prove difficult to achieve."

The move would, however, allow Lloyds to build on its 1.8bn purchase of Cheltenham & Gloucester in 1994, and develop its mortgage business.

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