Merged giant will not be reined in, Mathewson warns

Sir George Mathewson has cautioned that the new group's competitors would be best not to look to ministers to encourage the new banking giant to reduce its dominant market share in areas such as mortgages and retail banking.

Mathewson, the former chief executive of Royal Bank of Scotland, was commenting amid growing speculation that the government would seek to address concerns over the power of the new group.

Industry sources have cited the fact that the nationalised Northern Rock mortgage bank cut back its lending after complaints from rivals that it had an unfair advantage in being backed by the government.

Mathewson told The Scotsman yesterday that hopes of a similar move over the new Lloyds TSB/HBOS were "fanciful". He added: "The government has suspended the competition laws for the purpose of this merger. I cannot therefore see anything like that (a voluntary reining in of market share by Lloyds/HBOS] happening."

Mathewson, who is chairman of First Minister Alex Salmond's Council of Economic Advisers, said he believed competition law had been "damaged" by the UK government effectively facilitating HBOS's takeover.

"To a degree, the credibility of competition law has been undermined," he added.

Banking rivals, particularly Abbey-owning Santander, are said to be upset at the competitive advantage given to a Lloyds TSB/HBOS combination.

The new company would have a 28 per cent share of Britain's mortgage market, with second-placed Nationwide on 10 per cent and Abbey on 9.3 per cent.

Lloyds TSB/HBOS would also be No 1 in deposits, current accounts, household insurance and personal loans and cards.

Mathewson said it was clear Lloyds TSB's acquisition of Bank of Scotland via its takeover of HBOS would be badly received north of the Border.

The Mound in Edinburgh, HBOS's corporate HQ, will effectively be a regional HQ after the takeover by Lloyds TSB.

Mathewson said: "I would have thought Lloyds and HBOS would know there would be a response like there has been.

"It is 300 years of history gone because of a very short period of (market] instability."

He also cast doubt on whether there were any rival bidders for HBOS in the wings. "I would like to think I was wrong but it is difficult to envisage," he said.

"HBOS is a pretty big bank and there are only a limited number of global players who would feel they could get involved, and they have other things on their minds."

HBOS's shares fell 13 per cent to 180.2p yesterday, on continued worries over the $700bn US toxic debt rescue package getting through Congress.