Lloyds TSB 'planning German Bank deal'

Banking group Lloyds TSB was today reported to be working on plans to buy Germany’s Dresdner Bank from insurance giant Allianz.

One option thought to be under consideration involves Lloyds giving its Scottish Widows life assurance arm to Allianz in exchange for Dresdner’s retail operations, which are worth about £6bn (€7.6bn).

Lloyds is in a position to consider expansion because it has emerged relatively unscathed from the global credit crisis.

The Sunday Times said the company had begun work on a possible deal for Dresdner, as part of a review of opportunities in Germany and elsewhere on the Continent.

Other possibilities currently under review by Lloyds chairman Victor Blank and chief executive Eric Daniels are thought to include Postbank, the £8bn (€10bn) retail banking network, and Citigroup’s German operation.

Allianz has declared its intention to spin off Dresdner, although it may also look to bid for other banking assets to merge with its existing operation.

Lloyds has not had to take large write-offs related to sub-prime investments, unlike its rivals Royal Bank of Scotland and Barclays.

The bank is likely to come under pressure from some investors to maintain its strong balance sheet, which has so far meant it has not followed the lead of other banks and approached shareholders for funding support.

However, analysts also point out that now is a good time to capitalise on declining valuations in the financial services sector. It is expected that the huge losses sustained by banks from the sub-prime crisis will lead to a round of consolidation in Europe and America.

Lloyds, which has a stock market value of £19bn (€24bn), has operations in UK retail banking – including Cheltenham & Gloucester – as well as insurance and investments through Scottish Widows, and wholesale and international banking.