A war of words is escalating between HBOS and Santander Central Hispano as both adopt stronger tactics in the battle for Abbey.
Although HBOS has not yet launched a formal bid for Abbey, it went on the offensive last week by lodging a protest with the European Commission, calling for an examination of the cross-holdings of Santander and Royal Bank of Scotland. The two have common directors and HBOS is thought to want clarification on whether Santander plans to outsource Abbey's back-office functions to RBS.
Not to be outdone, in an interview with Money Marketing, Santander director Juan Inciarte called on intermediaries to support his bank's bid for Abbey, claiming it will be able to offer more to the marketplace than HBOS.
Despite rumours to the contrary, Santander has confirmed that if a competing offer for Abbey is announced and subsequently referred to the Competition Commission, it will not let its own offer lapse “provided the acquisition can still be completed by March 31”.
If Santander is triumphant, it says it will reduce the workforce at Abbey by 3,000.
But the view in the City is that job losses would be considerably more if HBOS were to snap up Abbey, as up to 70 per cent of Abbey branches are within a quarter of a mile of HBOS branches. Some sources estimate a takeover by HBOS could result in up to 9,000 job losses at Abbey.
Inciarte has made it clear he is very keen to support IFAs. He thinks Abbey for Intermediaries has already set out its commitment to the market and says: “Santander wants to continue to be strong for IFAs.”
However, Santander's presentation to analysts at the end of July painted a slightly different picture. It said Abbey currently sells 35 per cent of its mortgages through branches – “well below the market average” – meaning that 65 per cent of Abbey mortgages are sold through intermediaries.
Santander plans to increase bank sales to 50 per cent to create “a better book of mortgages with lower origination costs and a greater ability to cross-sell”.
This would obviously mean a considerable reduction in the amount of business Abbey does with intermediaries.
The presentation also demonstrated that Santander is keen to increase the sale of higher-margin products such as consumer loans, protection and general insurance.
Inciarte wants to bring Santander's Spanish platform All Funds Bank, which sells third-party funds, across to Abbey and says he is keen to launch new mortgage products.
He explains that intermediary presence in Spain is not as strong as in the UK. Santander works with around 2,000 tied agents and also with small IFA firms.
Inciarte says: “Distribution in Spain is either through small IFAs or through tied agents. In the UK, there are many large companies of IFAs, which is not the shape of the market in Spain.”
Reports have also pointed out that over two-thirds of Santander's staff are on performance-related pay compared with fewer than 10 per cent of Abbey's. Given the criticism directed at performance-rel-ated pay by both the Consu-mers' Association and the Treasury select committee in recent months, it will be interesting to see how Santander's approach will translate if the bid is successful.
The CA also has concerns about the potential Abbey/ HBOS merger and says it expects the Competition Com-mission to consider the sit-uation should HBOS make an offer.
Senior policy adviser Mick McAteer says: “The potential impact for the mortgage and savings market, should Abbey and HBOS merge, would concern us as their combined share would be quite significantly more than 30 per cent of the mortgage market.”
But Standard Life Bank chief executive Anne Gunther does not believe a merger between the two British banks would harm the mortgage market. She says: “Each player competes across a range of products, not just mortgages, so the competition authorities will have a difficult task.
“I do not think a merger would change the dynamic of the mortgage market. There are lots of big players there already and I have proved with Standard Life Bank that there is room for new entrants, even with the competition.”
But McAteer believes the dynamics of the market are in the process of changing. He says until now there has been a lot of competition for new business in the mortgage market but there is now a sense that banks are focusing on the savings market and trying to attract money there.
He says: “People are trying to say that it would not hurt the market if Abbey and HBOS merge as competition in the mortgage market is so fierce but we are at a point in the economic cycle when the spotlight is shifting to savings.
“Competition is increasing there and shifting away from mortgages. At some points of the economic cycle, all companies focus on lending and ignore savers. But with interest rates rising, there is more interest in savings and the only way for lenders to maintain margins is for the cost of mortgages to be a lot higher.”
McAteer does not think there is enough competition in the mortgage market to support a combined HBOS and Abbey. He is more enc-ouraging about Santander, as he says this would provide a fifth force in the current-acc-ount market. “If Abbey had a big parent company like San-tander, it could take on the big four and that can only be a good thing,” he says.