When Banco Santander Central Hispano's takeover bid for Abbey was interrupted by a surprise show of interest from HBOS, it raised questions over how the UK's fourth-biggest bank would be able to sidestep the Competition Commission.
HBOS's lawyers are looking at whether a bid is feasible after Abbey accepted Santander's £8bn offer. A Deutsche Bank report entitled, HBOS, Best Dressed for the Abbey Ball, says HBOS can expect to emerge as the ultimate victor from the imminent takeover battle.
Deutsche analyst Nick Lord says “We believe it is increasingly likely that HBOS will counter-bid for Abbey and that it is the only UK bank with a serious chance of success.”
Abbey media relations executive Matthew Martin says there is only one bid on the table – from Santander. But Deutsche analyst Carlos Berastain says there is a 60 per cent probability that a counter bid will take place and that Santander will ultimately lose the fight.
Concerns have emerged from mortgage intermediaries that competition in the market may be eroded by an HBOS takeover. Chadney Bulgin IFA Tom Chadney says: “A successful HBOS takeover would be disappointing as, with Abbey in the market, the competition has been kept really fierce. Abbey has been kept on its toes. It will be a huge loss to the market.”
London & Country broker David Hollingworth says an Abbey merger with Santander would benefit the mortgage market as the Spanish bank has shown outspoken support for IFAs in the UK and wants to make its mark with competitive products.
Speaking to Money Marketing, Santander director Juan Inciarte says if its bid succeeds the bank would be able to launch new products and offer efficient technology in direct competition with the UK's big banks.
Hollingworth says: “Although I believe that HBOS will eventually place and win the Abbey bid, Banco Santander could offer a big opportunity for the UK market. With the combined expertise of Abbey and the bank's willingness to corner the UK intermediary market, there could be a really interesting mood in the market.”
He believes that if HBOS makes a successful bid, a big competitive force will be taken away from the market.
But Durlacher analyst David Pannell says the competition in the market will not be hugely affected as the mortgage market is already competitive.
With HBOS's growth in recent year in specialist areas such as buy to let, it sees the possible takeover as an opportunity to balance its portfolio and to become a bigger player. Pannell says: “Overall, it would be a good thing for everybody.”
This is echoed in the Deutsche Bank report. Lord says he believes the Competition Commission views the mortgage market as being a very competitive market and although a potential HBOS deal would come under scrutiny, it would not be contested in the same manner as the Lloyds TSB bid.
Lord adds: “Although it is possible that others may also enter the fray, regulatory hurdles are comparatively higher and so we believe that HBOS will be the only serious counter-bidder.”
Charcol senior technical manager Ray Boulger believes that the Abbey brand would disappear in the event of an HBOS takeover. He thinks there would be no logic in maintaining two high-street brands – Halifax and Abbey – under the HBOS umbrella, saying “it will make no sense in the long term”.
He considers that if if HBOS is successful with a bid, the erosion of the Abbey brand would reduce consumer choice and lead to branch closures but concedes that consolidation is inevitable in the mortgage market over the next five to 10 years.
Yet many other brokers believe that Abbey would be able to operate under its own brand if it comes under the HBOS umbrella. Chadney says with Abbey's clear brand name in the UK, it would be prudent for it to continue to trade under its name. History shows us that HBOS has kept brands, including Birming-ham Midshires and Halifax, but as Chadney says: “HSBC knocked Midland Bank on the head so you never know.”
Interestingly, Abbey spent £7m on branding last week, perhaps a sign that it sees value in not letting go of its well recognised name.
Southern Pacific Mortgage Limited director of credit Stuart Aitken says “Whichever of the major contenders acquires Abbey, they are unlikely to want to dismantle such a strong brand within the mortgage market.”
Purely Mortgages chief executive Mark Chilton says that HBOS would empower the brand and improve its efficiency in the back office. Halifax and Abbey would potentially be competing against each other on the high street but working off the same balance sheet which will keep costs down and ensure efficiency.
Santander has an efficient back-office structure which would help Abbey which, in recent years, has not been a spectacularly efficient operation. The share of the mortgage market is currently dictated by new business and price, moving towards the American model.
Ultimately, Banco Santander would have no option other than to launch aggressively into the UK with highly competitive products.
The industry is expecting a bid from HBOS soon. Chilton says HBOS is playing a “very clever game” with its competitor and would be in a no-lose situation if it placed a bid. The most obvious motivation is to see off a potential major competitor. The second motivation is to test the Competition Commission.
Chilton says: “If HBOS loses the bid after a referral to the Competition Commission, over the time of the referral the competition could effectively be weakened. Meanwhile, HBOS could potentially get some guidelines on what type of deals would be acceptable to acquire smaller groups. They would be nuts not to go ahead with a bid.”