Chapter 6: Mergers and Crisis?

Case of Lloyds/ HBoS

An appropriate implementation of the merger control laws is indispensable as these

perform a crucial role in confirming the safeguard of customer interests concerning

reduced costs, quality goods as well as services along with enhanced modernization. The

requisite of sustaining or retrieving permanent competitive markets is not in conflict with

the requirement for temporary financial constancy. In contrast, it finds the way out to

crisis of market incompetence as well as market collapse. Consequently, the Commission

is responsible to carry on utilizing the accessible merger control laws as well as financial

setting.

Bank acquisitions by States are examined under the Merger Regulation where power is

obtained and the State does not retain the attained bodies as autonomous business units.

Currently, merger control laws take into consideration every the basic flexibility to

handle swiftly developing market environment from time to time. Concerning process,

business dealings that need prompt action, for instance those that are element of salvage

actions, can be handled in a quick framework of time.

EU merger control laws permit the Commission to entirely consider quickly changing

market situation and, where relevant, the deteriorating business protection.

In consequence to financial crunch, there has been comparatively a slight merger action

in the economics sector. It is anticipated that with constancy in market situation,

merger activity will be enhanced1.

EC Treaty had no explicit merger control terms, regardless of the severe merger control

system. The Commission required merger control rules and during process it

acknowledged that market composition itself is decided by financial powers, that the

procedure of market mixing would direct to an enhancement in supply-side application,

and elucidated its own duty to retain accurate competition.

The method of industrial application is rising. The reasons remain basically in

Community company’s requirements to adjust persistently to the innovative level of their

marketplace and to enhance their cutthroat competition globally. Several mergers, on

account of market structure reduce competition however, in contrast, can enhance it.

Nevertheless, the Commission cannot ignore that the EEC Treaty entails to maintain the

harmony of the shared market, making sure that the market stays approachable and assure

successful competition. Extreme concentration is probable to block these targets. For

mergers, a precise apprehension of Commission was one that would produce leading

place, since it will have an impact on market performance. The consequences of mergers

are predominantly grave since the merger produces a permanent modification of market

structure. As soon as a prevailing point is accomplished, a considerable competition from

1
Competition policy and economic recovery. Tackling the financial crisis. European
Commission.
the residual market firms is not usually to be predictable. Additionally, leading firms

have frequently a place to avoid fresh competitors from incoming.

The Council of Ministers was more concerned with the promotion of European

champions than in holding the Commission control EC market structures. However as

market mixing proceeded, the benefits of a one stop merger control supermarket turned

out to be obvious to European industry, which brought into the situation to achieve

approval for international mergers from manifold nationwide growth. European Court of

Justice elucidates that Articles 81 and 82 could be related to mergers, in various

conditions.

The Commission explained the goals of the Merger Control Regulation (MCR) in the 19th

report on Competition Policy. It put stress on the similar issues that it faced 16 years ago.

The procedure of reforming European trade has enhanced a tendency of mergers. Despite

the fact that a lot of such mergers have not caused harms from the competition approach,

it must be certified that they do not put the competition process at risk in the long run,

which is central to shared market2.

The interpretation of mergers under the EC merger control laws is somewhat diverse. On

the contrary, there has been comparatively minute merger action openly concerning

salvage or reformation of banking or additional economic firms that has been exposed to

be appraised by the Commission. A few cases like the

2
The Goals of Antitrust and Competition Policy. Department of Economics. Martin, Stephen. Pg. 59.
Lloyds/HBOS merger in UK has been handled by National Competition Authorities in

the pertinent European Union Member States.

Nevertheless, it is probable that as the economic sector instability and disorder get

relaxed, there will be additional mergers in the banking sector. The similar rule is

applicable to other fields of real economy where the consequences of the economic

recession may cause a few mergers.

In review of mergers that take place in opposition to financial crisis environment, the

Commission’s main concern is to make sure that it upholds valuable inspection according

to the competition analysis expressed in the EC Merger Regulation. The function of the

analysis is to guarantee that the interests of the customers are safeguarded. This will be

attained by retaining financial constancy shortly. However, in the long run, it will be

attained by sustaining competitive structures of market.

It is thought that EC Merger Regulation is a suitable and adequately supple device for

merger control implementation in catastrophe and in regular period. The assumption of

exceptional actions is not required for the analysis of mergers in disaster. There is no

requirement to modify significant analysis for constructive mergers. However, certainly,

the crisis has created technical problems; a few of them are precisely joined with Member

State involvement in the financial system due to crisis3.

3
The Commission Considers That Environmental Goals Should Remain A Priority Despite the Crisis.
Lowe, Philip. Pg. 17.
The Lloyds/HBoS case

The prominent model of the influence of the economic crisis on competition policy is the

acquisition of HBoS by Lloyds. This acquisition occurred in 2008. A probable merger

involving these two banks had frequently been believed, however up till now prohibited

principally on competition basis, predominantly subsequent to the Competition

Commission’s ban of the Lloyds/Abbey merger in 2001. Yet, a probable merger was

declared on 18 September, 2008.

Simultaneously Ministers acknowledged that a latest community concern base of

sustaining economic constancy would be launched into United Kingdom merger control.

Afterwards, the Secretary of State delivered an involvement announcement on the

foundation of this concern. The OFT carries out a swift but complete competition test. On

24 October, it finalized that the merger did increase competition concerns, mainly

concerning individual existing financial records, which needed analysis by the CC.

The initial feature to observe in this case is that as this case by no means occurred before

the CC, no observation on the qualities of the assessment can be stated, predominantly to

the degree which CC would have been considered a number of the pecuniary solidity

problems in its analysis. It just didn’t occur and CC has no vision on the gist of this case.

Though, concerning modus operandi, the series of proceedings about this case reveals

that United Kingdom merger control events were actually supple to tackle an extremely

susceptible case of this sort.

It is paramount to observe this case as a cut off event, a creation of the severe realistic

state of affairs existing years back. It is effortless to be sensible subsequent to this

episode. However the merger was initially introduced at an occasion when the dominant

problem emerged to be short of assurance and a merger with Lloyds/TSB was perceived

as a sound support for HBoS depositors; but, as the condition altered swiftly to under-

capitalization, within which a merger was not as much related, as insertion of state

resources could have been prepared to HBoS both on its own or as a component of a

merged unit. In addition to this, the state aid offered to RBS occurred devoid of any

merger situation. The issues regarding the competition considerations about this case take

place. There are numerous methods in which additional measures may be taken.

Primary measure is the measure taken at EU level. Though, the Lloyds/HBoS merger did

not come in European merger control, the succeeding introduction of state funding needs

authorization according to EU State Aid laws. This procedure has acknowledged a

positive exposure and is at the present in its reformation stage. This is when the EC

determines, what amendments to the banks resources involved are suitable with the

purpose of safe consent for their nonstop acceptance of state aid. Generally the goal is to

avoid the banks from obtaining an undue competitive advantage by virtue of carrying on

accepting, state aid. The latest proclamations regarding Lloyds and RBS, approaching to

disintegrate ING as well as to support the ending of Northern Rock are a proof that this

method does have an authentic effect.

Secondly the reality that a specific merger has been permitted does not play its role in

eliminating the competition problem. In demonstration on LIyods/HBoS to the OFT, HM

Treasury emphasized that the general compliance with the bank recapitalization system

with EU State Aid laws and the Government’s concern in making sure that measures

under that method were not anti-competitive. It affirmed that the OFT had been requested

to carry on examining competition in the banking sector and that accurate measures must

be adopted in case of any issues detected.

Regular competition laws have been utilized in merger control, with the omission of

Lloyds/HBoS. Depression leaves a severe impact on merger activity in a number of ways,

such as, deteriorating companies may be purchased without any trouble, wholly or partly

by competitors; these may merge for protective motives, to slim down ability and put

aside expenses; and exclusive business enterprises may hope to dissociate from resources

as cash wasted. The universal standard approved by both the OFT and the CC is that the

rules are unaffected; however the truth to which they are used may be modified, and this

may concern the investigation and the results. It gets the shape of approval that the capital

of a fading business is probable to disappear from the market. This is a less competitive

effect than its acquisition by a competitor4.

Regular competition laws have been utilized in merger control, with the omission of

Lloyds/HBoS. Depression leaves a severe impact on merger activity in a number of ways,

such as, deteriorating companies may be purchased without any trouble, wholly or partly

by competitors; these may merge for protective motives, to slim down ability and put

aside expenses; and exclusive business enterprises may hope to dissociate from resources

as cash wasted. The universal standard approved by both the OFT and the CC is that the

rules are unaffected; however the truth to which they are used may be modified, and this

4
We are here in a very melancholy Situation’. Financial crisis and competition policy.
Freeman, Peter. Pg. 4.
may concern the investigation and the results. It gets the shape of approval that the capital

of a fading business is probable to disappear from the market. This is a less competitive

effect than its acquisition by a competitor. The aptitude to deprive the entire or an

element of acquisitions may be influenced by existing financial crisis, concerning merger

therapies. This could have an effect on the aptitude to discover a suitable consumer;

however, it is visible that this has not up to now showed a quandary for the CC as this

treatment, where desirable, has been fruitfully employed. No additional public welfare

issues were introduced to tackle the impact of crisis in terms of merger system. In

addition to this in one instance, the OFT was invited to judge whether the rule for

national and provincial media mergers should be hassle-free to support mergers in

trouble; moreover observed that no relaxation was required5.

5
Ibid.
REFERENCES

European Commission. Competition policy and economic recovery. Tackling the

financial crisis. Retrieved from
http://ec.europa.eu/competition/recovery/financial_sector.html

Freeman, Peter. 2009. We are here in a very melancholy Situation’. Financial

crisis and competition policy. David Hume Institute. Retrieved from
http://www.competition-commission.org.uk/our_role/speeches/pdf/freeman_031009.pdf

Lowe, Philip. 2009. The Commission Considers That Environmental Goals Should
Remain A Priority Despite the Crisis. Vol. 5. No. 2. Retrieved from
http://ec.europa.eu/competition/speeches/text/cpi_5_2_2009_en.pdf

Martin, Stephen. 2007. The Goals of Antitrust and Competition Policy. Department of
Economics. Purdue University. Rertrieved from ftp://ftp.zew.de/pub/zew-
docs/veranstaltungen/rnic/papers/StephenMartin.pdf