COMMERCIAL-IN-CONFIDENCE
44. The cost of other services to small businesses and to some personal customers would also be likely to increase, they claim. In practice the scope for small business customers to "unbundle" their banking requirements (eg by taking a loan from a bank whilst going elsewhere for eg money transmission, lodgement, advice etc) is limited by the convenience factor and the importance of developing a continuing relationship with the bank in order to qualify for lending on favourable terms. Proximity is, they suggest, also important to certain personal customers who need "non-standard" services such as flexible overdrafts and bankers references, which are not readily available from building societies, but do not possess sufficient wealth to be attractive customers for the "private banking" sector.
45. HSBC do not regard a divestment of branches as an appropriate remedy, even if a buyer could be found, for the following reasons:
i) sale of branches to a competitor will do nothing to reduce the over-capacity which is said to be the main obstacle to optimum efficiency and profitability;
ii) the sectors where competition would be most severely affected are integral parts of each bank's (and each branch's) overall business- they cannot be separately identified and clearly severed from its other activities;
iii) computer systems and other support services would have to be replaced, along with many key staff, significantly increasing the buyer's costs and reducing his ability to compete effectively, at least in the short term;
iv) divestment would only affect market share to the extent that the branch's customer base remained there after the disposal. This would be impossible to guarantee, since some customers would be willing and able to transfer their accounts elsewhere (including to another Lloyds branch);
v) the effective transfer of a branch's accounts etc to another bank would require a Private Act of Parliament, which would take a long time; meanwhile the adverse effects of the merger would continue.
46. HSBC also claim that a Lloyds/Midland merger would produce an undesirable concentration in the "merchant aquisition" market (ie, the processing of credit and debit card transactions for retailers on behalf of credit card issuers). The "big four" banks have around 90 per cent of this market (the TSB and the Royal bank of Scotland have the remainder). HSBC refer to the conclusion of the MMC in its 1989 report on Credit Card Services that the lack of competition in this market had led to excessive profits. They suggest that although the position had improved somewhat since then because all four major banks had begun to provide the service
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COMMERCIAL-IN-CONFIDENCE