Businesses fear Lloyds TSB could shackle HBOS activity

Published on Wednesday 17 September 2008 21:44

A MERGER between HBOS and Lloyds TSB would have "serious and important implications" for Scotland's businesses, according to some of Bank of Scotland's most prominent corporate customers.

Last night, the prospect of losing what has been one of the most active and aggressive business banking groups in Scotland was weighing heavily as a number of the country's largest companies were forced to review their business strategies.

HBOS not only banks a significant share of Scotland plc, but it is also a major backer of buyouts, investments and other transactions via the Bank of Scotland Corporate team lead by Peter Cummings, who is the bank's highest-paid director ahead of HBOS chief executive Andy Hornby.

He is a well-known associate of Sir Tom Hunter – and often a 50/50 financier with Hunter in the billionaire's bold acquisitions including housebuilder Crest Nicholson.

Cummings was also equally influential when he took a 50 per cent stake of Scotland's largest hotels group, Macdonald Hotels, when its owner, hotelier Donald Macdonald, took it off the stock market in a bumper 600 million buyout in 2003.

As of a few months ago, BoS Corporate had more than 4 billion invested in property ventures alone, with several of these including big stakes in some of Scotland's most significant commercial and residential property companies including Miller Group, Kenmore, Kilmartin and Cala.

Fears that a more conservative Lloyds TSB could subdue HBOS's venturesome policies were rife as business figures in Scotland spoke of "regime change".

"You can only think Lloyds would be more strict," observed one.

Dan Macdonald, chief executive of property developer Macdonald Estates and chair of the Scottish Property Federation, said the prospect of losing Bank of Scotland's involved approach was "very sad".

"No matter who takes over HBOS, I would hope they would sustain what the bank started but more than that I hope they will be able to sustain the name of Bank of Scotland in Edinburgh."

The potential takeover would also throw serious doubt on the redevelopment of a site HBOS had claimed for a new business banking headquarters in Edinburgh's Fountainbridge area.

At the smaller end of the company spectrum, concerns were voiced about lending practice and choice available from a larger Lloyds TSB/HBOS combination, saying this could be overlooked in the desire to "rescue" the group.

Nick Palin, director of finance at the Forum of Private Business, warned that customers were in danger of suffering from having fewer banks to choose from.

"There is a danger that, by merging, the choice available to business customers will decrease," he said.

"The FPB's advice has always been to shop around for the best deal. However, we are already seeing some of the big-name banks increase overdraft rates and impose restrictive charges. Fewer banks could mean a lack of competitiveness, less of a chance of securing better rates and more of an uphill struggle for small firms to control costs."

A spokesman for the Scottish Chambers of Commerce, however, welcomed the merger as a potential end to the uncertainties as the bank faced a calamitous run on its shares.

"Lloyds TBS is the safest bank in Britain," he said.

Stephen Alambritis, head of public affairs at the Federation of Small Businesses, said: "The implications for small business lending would be an area of concern if Lloyds TSB, one of the big players in the arena, gets bigger by taking over HBOS.

"We want as many lenders as possible to encourage competition and make it easier to switch between the lenders. We would urge the government and the Competition Commission to allow the takeover talks between Lloyds and HBOS but to look very, very carefully at the implications for business services to SMEs".