COMMERCIAL-IN-CONFIDENCE
information was made available to the Mergers Panel at its meeting on 15 May. OFT officials met Lloyds on 18 May to discuss the possibility of divestment undertakings in the three areas of concern. Following that discussion, Lloyds offered additionally to divest either their, or Midland's interest in merchant acquiring, and revised their proposal on divestment of branches- letter of 19 May, Appendix II.
42. Lloyds also argue that if their proposal is referred to the MMC, the HSBC bid should also be referred, on "fairness" and "public interest" grounds, and that the Government should use the provisions of Article 21 of the ECMR to this end. On "public interest", they suggest that HSBC's bid will deny the UK the public interest benefit of the efficiency gains offered by Lloyds. They also claim: that ownership of Midland by HSBC raises prudential questions which would justify a reference; that the interests of its new owners (who may be subject to influence by the government of China) would be less likely to coincide with the UK national interest; that HSBC have a poor record of management outside of Hong Kong (which would affect their ability to manage Midland efficiently); that changes in HSBC's tax position if, as they plan, they became UK resident for tax purposes, would seriously impair their profitability and reduce the "tax take" for the UK; and that HSBC's bid would have serious employment consequences. On "fairness", they argue that the fact that HSBC's bid is being examined under the ECMR, whereas theirs falls under the FTA, puts HSBC at an unfair advantage, since the EC is likely to conclude its scrutiny soon, and so investors will be unable to compare the two proposals side by side if Lloyds' is referred to the MMC and HSBC's is not. [They have also argued that the HSBC bid falls outside the Commission's jurisdiction on a true interpretation of the criteria in the ECMR; however the Commission have rejected this argument and Ministers have accepted OFT advice not to challenge it.]
VIEWS OF HSBC
43. HSBC argue that Lloyds' bid should be referred to the MMC, primarily on competition grounds. A Lloyds/Midland merger, they claim, would eliminate one of the most significant suppliers of banking services. The diminution would be most pronounced in certain regions, notably in the West Midlands, the North, South-West and East Anglia, and in Wales; in all these areas the merged bank would have over 45 per cent of "big four" branches. In rural areas, the reduction would be even more pronounced, with Lloyds/Midland having over 40 per cent of all bank branches in 13 counties, and over 50 per cent in Cornwall, Gloucestershire and Wiltshire. This concentration would bear especially heavily on the small and medium business sector of the market where, they argue, there are few alternative sources of lending and where the proximity of a branch is important to customers (because they are likely to have to visit it more frequently than most other
customers).
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