HBOS: Abbey decision ‘in days’

Potential Abbey National bidder HBOS would present an offer for its high street rival as good for competition and customers, it was reported yesterday.

HBOS, which was formed from the merger of former building society Halifax and Bank of Scotland has still to decide whether to challenge Spanish giant Banco Santander Central Hispano's agreed offer for Abbey, which currently values the operation at approaching £9 billion (€13.5 billion).

A decision is thought to be only days away, although weekend reports said HBOS would look to position itself as a powerful rival to Britain's major clearing banks HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB if it did bid.

Amid concerns about competition clearance, HBOS will argue that its increased presence could force other banks to offer better interest rates to customers.

The reports said it will also look to pass on some of the cost savings from a takeover to its customers in the form of higher interest rates on cash balances and lower rates on loans to small business clients.

Analysts believe HBOS could achieve £770 million in cost savings and increased revenues, although some of this will be at the expense of branches.

It is expected Santander's offer will secure clearance from the European Commission on Friday before the bank proceeds to posting its formal offer document to Abbey National shareholders.

But a counter-offer from HBOS possibly worth £10 billion is almost certain to trigger an investigation by the Competition Commission as the two British operations would hold more than one-third of Britain's mortgage market.

It was also reported that Northern Rock had appointed lawyers to construct a case saying a deal would be anti-competitive.

Santander has already said it would look for savings of 450 million in a move that would result in 3,000 job losses at Abbey.

Analysts expect a deal with HBOS to generate far more job cuts, as around 70% of Abbey's 741 branches are within a quarter of a mile of an HBOS outlet.

Santander does not have a branch network in Britain and will instead seek efficiencies through improvements to IT systems. Abbey currently has a 26,000-strong workforce.