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COMMERCIAL-IN-CONFIDENCE
CONFIDENTIAL AND MARKET SENSITIVE
summary the "Big Four" seem likely to remain dominant for some time to come in this important market. A reduction from four to three in the major providers of funds in this market seems to raise serious enough concerns in the light of the high level of complaints received last year to warrant further investigation.
WOULD DIVESTMENT IN LIEU OF REFERENCE BE APPROPRIATE?
14 My Office has discussed my concerns in these three particular markets in detail with Lloyds. In the course of these discussions, Lloyds indicated to my Office that they would be prepared to consider giving undertakings to make certain disposals aimed at removing those concerns, if this could obviate the need for a reference. My Office has therefore examined, on a "without prejudice" basis, whether there are grounds for me to recommend that you instruct me to negotiate suitable undertakings under section 75G of the Act.
15 Following the discussions, Lloyds have offered (see Appendix 3 to the Annex) to undertake to divest: (i) Midland's factoring operation (Griffin); (ii) either Midland's or Lloyds' merchant acquiring operation. If these were the only areas of concern, then I consider it likely that such disposals could meet my concerns over competition and so obviate the need for a reference. However a divestment to address concerns about lending to small businesses poses problems of a quite different order, principally because of the difficulty of identifying the relevant local markets and of separating lending to small businesses from the other "products" provided through the branch network. Lloyds proposal would be to sell, as a "going concern", a former Midland branch "where this was necessary to ensure that within a distance of about 7 kilometres from that branch there was no reduction in competitive choice in instances where, at the date of the undertaking, choice was limited to 2, 3 or 4 banks.
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16 The sum total of Midland branches to be sold on the basis of this proposal would, according to Lloyds, be about 150. Such a disposal would represent around 8 per cent of the branches to be acquired by Lloyds.
17 My advice to you is that I doubt whether an undertaking of this kind would remedy the adverse effects of the merger.
CONFIDENTIAL AND MARKET SENSITIVE
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COMMERCIAL-IN-CONFIDENCE
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