MPs slam 'damaging' takeover of HBOS by Lloyds

Published on Friday 1 April 2011 19:02

THE takeover of Halifax Bank of Scotland by Lloyds has created a financial institution that is "powerful" and is damaging competition in the UK market, a new report has concluded.

The part-nationalised bank's market share in some retail segments is almost double that of its nearest competitor, but there has been no assessment of the impact its standing has had on competition, according to a report from the House of Commons Treasury select committee.

The committee's report, called Competition and Choice in Retail Banking, has concluded that competition in the sector is not working.

Stuart MacKinnon, of the Federation of Small Business in Scotland, said Lloyds and the Royal Bank of Scotland account for about 75 per cent of the retail banking sector in Scotland.

"Our answer to that is to get more banks on our high streets in Scotland and across the UK and to develop alternative lenders so that we're not so reliant on these big banks," he said.

"They should be fighting over our members' custom."

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Public sector lending from institutions like the Scottish Investment Bank and smaller schemes like the West of Scotland loan fund could provide an alternative, Mr MacKinnon said.

"What we can't have is the marketplace dominated by two players, so that if anything happens to those two players, such as pressure from EU legislation on the amount of capital they hold, then the Scottish economy shouldn't suffer," he added. "We are an economy driven by small businesses." The Commons committee considered that the European Union-imposed sale of 600 Lloyds branches might not be enough to address the competition concerns.

A public interest test based on competition should be applied to the divestment and future sell-offs, the MPs say.

It comes ahead of the keenly-awaited spring report from the Independent Commission on Banking (ICB), due to be released on 11 April.

The ICB is believed to be drawing up a radical approach to reforming the industry, which could include a recommendation to split banks between investment and retail arms.

Analysts warned at the time of the takeover that it could lead to the creation of a "superbank", while financial experts, including leading Scottish businessman Jim Spowart, said HBOS was "manageable on its own" and should be allowed to trade out for three years.

The Treasury select committee took evidence from a wide range of banking industry figures, including former Lloyds chief executive Eric Daniels, Barclays boss Bob Diamond and Royal Bank of Scotland head Stephen Hester.

The committee's report also claimed that the sale of more than 300 Royal Bank of Scotland branches to rival Santander was a missed opportunity to inject more competition into a retail banking sector.

The RBS branches - sold to appease European competition concerns following its taxpayer-funded bailout - could have gone to a smaller firm and boosted competition, the committee said.

The report said: "As yet, there has been no assessment to see what impact Lloyds's strong position has had on competition in the retail market.

"We are concerned by the emergence of such a powerful player in the retail market and the potential competition implications."

The committee also found a lack of price transparency in the current account market as well as difficulty for customers wanting to switch accounts.

Committee chairman Andrew Tyrie said: "For competition to be effective, customers need to know what they are buying, how much they are paying and to be able to transfer their custom from one provider to another without risk."

He added: "The chief executives of the large incumbents told the committee UK retail banking was enormously competitive, but a far larger range of witnesses described the industry as close to an oligopoly."

Lloyds said the committee's report offered "a valuable way forward" to increase competition to benefit customers.

A spokesman for the bank said: "While we believe that the market is already highly competitive in many areas, we recognise that customers still perceive switching their current account to be difficult.

"We agree with the committee's emphasis on greater transparency and would support work by the Office of Fair Trading with the industry to develop a common approach to customer current account information."

Sarah Brooks, head of financial services at Consumer Focus, said: "'The Treasury committee has recognised what consumers have long known. The banking sector is not sufficiently competitive and is failing many of its customers."

She went on: "Banks have got to start working in the interests of the customers who provide their life-blood."

The forthcoming commission report must come up with recommendations to "remedy the very obvious and widespread failures" in this market, Ms Brooks added.