HBOS deal 'preordained' by Downing Street

Published on Monday 8 December 2008 20:28

THE decision to "rip up" competition rules and wave through the proposed takeover of HBOS by Lloyds TSB was "preordained" by the Chancellor and the Prime Minister, a hearing in London was told yesterday.

The stated position of Alistair Darling and Gordon Brown meant Lord Mandelson, the Business Secretary, was constrained over the matter, the Competition Appeal Tribunal was told.

It was the start of a two-day hearing brought by the Merger Action Group (MAG), a group of businessmen, bank customers and shareholders opposed to the proposed deal.

On 31 October, Lord Mandelson decided to ignore the advice of the Office of Fair Trading (OFT) to refer the Lloyds-HBOS merger to a Competition Commission investigation.

Ian Forrester, QC, MAG's chief counsel, urged the tribunal to quash that decision and recommend the takeover deal be referred to the commission.

Mr Forrester said statements in mid-September by Mr Brown and Mr Darling, that competition law would be waived to allow the proposed merger to go ahead, meant Lord Mandelson's decision six weeks later was not free.

"The dish had been precooked and the decision had been preordained that the competition rules were not to be invoked in this matter," he said.

"The government, in the shape of the Chancellor and Prime Minister, made the decision competition laws would be waived, or ripped up, or, my words, would be discarded. This must have constrained how the Secretary of State analysed the merger."

Mr Forrester argued that, while Lord Mandelson was entitled to take the decision to waive competition law, he had to do so based on sound advice that the public interest in the merger going ahead outweighed competition concerns.

He said the Business Secretary had relied on a statement from the Financial Services Authority (FSA), which wrongly claimed that, under European law, a government-owned HBOS could not "compete aggressively" with private banks.

Mr Forrester said Lord Mandelson was legally bound to take advice from the OFT, but not from bodies such as the FSA, which were "not competent" to advise on competition issues.

Paul Lasok, QC, for the government, said the action group's arguments could be dismissed by the tribunal because it did not have the required legal standing to bring a case.

He said the Enterprise Act stated that parties "aggrieved" by a proposed merger could appeal to the tribunal. However, those parties needed to have a greater interest in the deal than the public at large.

"The complainants have not identified any factor that distinguishes them from customers or the general public," he said.

Mr Lasok will conclude his arguments today before representatives for HBOS and Lloyds TSB make their submissions to the tribunal.

Its decision is expected on Wednesday, two days before HBOS shareholders are due to vote on the proposed merger at a meeting in Birmingham.