DRUIT
(ET MOP)
COMMERCIAL-IN-CONFIDENCE
CONFIDENTIAL AND MARKET SENSITIVE
JURISDICTION
5
A Lloyds/Midland merger would qualify under the Act for investigation on the basis of the value of assets to be acquired. It is a merger "in contemplation". The ECMR does not apply.
6 On HSBC's bid for Midland the UK has already advised the EC (following my office's advice) that: on the information available it would appear to constitute a merger falling within the ECMR; that it would not give rise to competition concerns and that it was not proposed to invoke Article 9 (the distinct market provision) of the Regulation but that the UK reserved its position on Article 21(3) (legitimate interests). The EC is expected to announce very shortly that they have found no grounds for more detailed examination.
THE PARTIES
7 Lloyds and Midland are two of the "Big Four" clearing banks. Natwest and Barclays are significantly larger and are more global in their operations. In contrast HSBC is not engaged in retail banking in the UK but is an international banking group, incorporated in the UK but currently resident for tax purposes in Hong Kong, where it is the largest financial institution and carries out some of the functions of a central bank. Further details are in the Annex. In summary Lloyds argue that there would be benefits from the merger and that radical rationalisation of branch structure is needed which a merger would bring about in an 'orderly' fashion. Midland are not recommending Lloyds proposed bid and argue that it should be referred. They intend to recommend the HSBC bid.
MARKET OVERLAPS BETWEEN LLOYDS AND MIDLAND
8
A merger between Lloyds and Midland would reduce the number of clearing banks from four to three. In terms of High Street banking, one of the four leading banks would disappear. My Office has considered competition in banking in a complex range of markets - details of which are in the Annex.
In many of the markets in which they operate (eg personal sector banking) the Big Four have become much more subject to competition (actual and/or potential) particularly since the deregulation of the Building Societies. I have identified nevertheless serious competition concerns in three particular markets, namely factoring, merchant acquiring and small business lending.
CONFIDENTIAL AND MARKET SENSITIVE
2
COMMERCIAL-IN-CONFIDENCE