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MARKET COMMENT
By
Carburton Street, London -- Businesses, in particular banks, exist in an increasingly competitive environment. In order to survive, they need to seek out new opportunities. Growth is often the sole reason for these businesses to examine new strategic directions, but not always. Yesterday, the Office of Fair Trading published its report on the merger plans between Abbey National (LSE: ANL) and Lloyds TSB (LSE: LLOY) and the separate merger proposal between Abbey National and Bank of Scotland (LSE: BSCT). The two propositions demonstrate very different strategies for addressing the problem of over capacity in the banking sector. The proposed merger between Abbey and Lloyds is based predominantly on rationalising cost through the synergies extracted from the deal. Both banks have a significant presence through their UK-wide networks of branches, which are 2,250 in the case of Lloyds and 750 for Abbey National. The combined group would see Lloyds' share of the current account market increase by around 5% to over a quarter of the total market. Co-locating overlapping branches in more than 600 localities would make substantial cost savings to justify the merger. In contrast, the merger between Abbey National and Bank of Scotland is based on increased geographical presence allowing both banks to expand into new markets. Bank of Scotland has 350 branches across the UK of which only 29 are outside Scotland compared with Abbey National's 62 branches in Scotland. Branch closures would be unlikely and the deal would see a cross-fertilisation of Bank of Scotland's expertise in SME businesses and Abbey National's proficiency in the residential mortgage market. The Lloyds TSB-Abbey National merger is inward-looking and defensive by nature and is also designed to strengthen Lloyds' position by restricting consumer choice. In contrast, the Bank of Scotland-Abbey National tie up is outward-looking with growth achieved through increased consumer choice. It is indeed a great pity that Bank of Scotland found it necessary to break off talks with the Abbey National. Discussion boards: Abbey National | Bank of Scotland | Lloyds TSB