Tribunal can right the wrongs of HBOS saga

Published on Friday 28 November 2008 20:04

TODAY The Scotsman reveals another twist in the long-running attempt by Lloyds TSB to take over HBOS. In September, the government ran roughshod over normal competition rules to let Lloyds TSB swallow HBOS, on the grounds that there was no other way of saving the Scottish bank.

However, the Treasury has since recapitalised both institutions, removing the threat to HBOS. A subsequent investigation by the Office of Fair Trading found that if the takeover proceeds, the loss of competition will mean a poorer service for bank customers. But Lord Mandelson, the Business Secretary, ignored these findings and waved the takeover through.

Now a group of Scottish business leaders has decided to refer Lord Mandelson's decision to the Competition Appeals Tribunal (CAT) – a body with the powers not only to overturn the minister's dubious ruling, but to block the merger itself.

Some will say that an appeal to the CAT is an irrelevance as Lloyds TSB shareholders have voted to approve the takeover. But earlier this week, the Governor of the Bank of England, Mervyn King, warned that the major UK banks were still not lending to the private sector – despite massive aid from the tax payer. Mr King argued that if the banks did not play their part then the government might have to nationalise them. If we cannot trust the banks to behave, why is the government intent on making matters worse by setting aside competition rules for Lloyds TSB?

Mr King's warning is a justification for getting the CAT to reopen the issue. It remains unclear why the government has been prepared to go to such lengths to justify the loss of HBOS, other than to save face after it made a hasty decision. Last month, the government even went so far as to amend the Enterprise Act adding a test referring to the "stability of the UK financial system" to the list of grounds under which ministers can take the final decision regarding mergers.

The fact that the government had to change the law in order to give Lord Mandelson a presumed right to do something he had already announced he was going to do is highly dubious. It carries a prima facie implication that the Business Secretary prejudged the HBOS deal – a bias that warrants examination by the CAT.

There is more: under the revised terms of the Enterprise Act, Lord Mandelson still must specify how a failure of the Lloyds TSB takeover of HBOS would "destabilise" the UK financial system. As the government has said it would be prepared to recapitalise Lloyds TSB and HBOS separately (if asked), there is clearly an alternative scenario which maintains both stability and competition on the high street.

HBOS shareholders have yet to vote on the takeover. They retain the ability to block the deal and turn HBOS back into the bank it used to be. In the meantime, the Competition Appeals Tribunal must act to restore the rule of law.