Lord Mandelson's grounds for clearing HBOS/Lloyds TSB

Ministerial decision (9 pages, PDF) not to refer the merger of Lloyds TSB and HBOS to the Competition Commission, despite the risk of a substantial lessening of competition identified by the OFT.

Under the Competition Appeal Tribunal rules, interested parties probably have four weeks to challenge the decision under section 120 of the Enterprise Act 2002.

Comment: This decision does not look robust to me. The grounds for clearing the merger seem to be that:

12 ... the Secretary of State considers that the merger will result in significant benefits to the public interest as it relates to ensuring the stability of the UK financial system and that these benefits outweigh the potential for the merger to result in the anticompetitive outcomes identified by the OFT.

But whether the benefits “outweigh” the risks is not the relevant test in my view. I think that the minister had to ask himself whether it was necessary to expose bank consumers to the risk of a lessening of competition in order to preserve the stability of the UK financial system. The ministerial decision contains nothing to rebut the proposition that the OFT's counterfactual — the continuation of temporary public ownership of HBOS for a few more years, followed by a non-anticompetitive sale — would have delivered sufficient stability of the UK financial system, without the risk of lessening of competition associated with the merger with Lloyds TSB. In my reading of The Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2008 and section 45(6) of the Enterprise Act 2002, the Government cannot legitimately rely on any alleged additional benefits over and above the basic stability of the financial system as a whole to justify an anti-competitive merger. Franck.

For further information or advice please contact Franck Latrémolière.

Filed under DTI/BERR, Merger control.

Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.

About Reckon