UK Government holding company for banks (UKFI)

HM Treasury press notice (about 1 page) that it will hold its shareholdings in bailed-out banks through a limited company, UK Financial Investments Limited (UKFI).

UKFI is intended to have full ownership or substantial stakes in Royal Bank of Scotland, Lloyds (if it merges with HBOS), Northern Rock and the Bradford & Bingley mortgage business. Whilst these banks will retain their own boards “determining their own strategies”, UKFI will eventually own Northern Rock and the B&B business, and will be responsible for enforcing the bail-out conditions on the others, including their promise to maintain “the availability and active marketing of competitively-priced lending to home owners and small businesses at 2007 levels”.

There is no mention of any merger control procedures for this restructuring. The shareholdings and extent of influence involved seem greater than for Sky's investment in ITV, which was found to be subject to UK merger control (independently of any media public interest considerations).

The press notice does not give enough information to determine whether UKFI should be seen as an enterprise (rather than part of public administration) and therefore subject to merger control for its acquisition of each bank shareholding. Even if UKFI is not an enterprise, its existence and shareholdings may establish sufficient structural links between the banks that it invests in to warrant a merger investigation by the OFT and Competition Commission. This would be most obviously the case between the Royal Bank of Scotland and a merged Lloyds/HBOS, which would be major competitors in both personal and business banking.

Comment: I can see two ways in which the Government could prevent merger control investigations:

Neither way sounds good. Franck

For further information or advice please contact Franck Latrémolière.

Filed under HM Treasury, Merger control.

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