COMMERCIAL-IN-CONFIDENCE
VIEWS OF GOVERNMENT DEPARTMENTS
55. The Foreign and Commonwealth office has commented (Appendix III) on the HSBC proposal and on the arguments that it raises issues of foreign policy and "foreign ownership" which would justify an MMC reference. It sees no grounds for such a reference and considers that to make one would be interpreted overseas as a lack of confidence in Hong Kong's financial stability, with damaging political consequences at home and abroad. The Department of Employment has expressed concern about the scale of job losses inherent in the Lloyds proposal, although they do not consider that this would justify a reference by itself. The Welsh Office believes the Lloyds proposal should be referred because of the reduction in competition, possible complete loss of service caused by the reduction in branches (especially in rural areas), concerns about employment in Wales.
ASSESSMENT
As
56. The Office's analysis has disclosed no grounds for concern over competition in regard to the HSBC proposal. regards Lloyds, it suggests that in a number of markets in which overlaps occur (eg personal banking) competition concerns would not arise from the merger. In many markets competition is intense and a reduction from 4 to 3 in the number of major clearers would not reduce choice significantly. However as the Bank of England's overview and
own analysis suggests, banking markets are complex and comprise a number of sub-markets within which there are varying degrees of competition. In some of these markets the reduction from four to three large clearers would have a much more significant effect. These are the markets which might be described as non-contestable in which eg customers will experience difficulty in switching from one bank to another.
57.
Markets where particular concern arises are:
Lending to small businesses
In this market, small businesses typically rely on funding from the local bank. They do not usually have access to capital markets. A reduction in possible lenders from four to three would appear to be a significant detriment to small businesses. Concern has been expressed on this by representatives of small businesses and it appears to be common ground that this is a market where detriments from a Lloyds/Midland merger would arise.
Factoring and invoice discounting
A Lloyds/Midland merger would give Lloyds a very high share (at about 50 per cent) of this market leading to loss of choice and Lloyds itself has acknowledged that this might be unacceptable on competition grounds.
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COMMERCIAL-IN-CONFIDENCE