Tuesday, 7 June 2011

Why Less Competition May Be Better

An article that appeared in the Financial Times in April suggested that the Lloyds-HBOS merger will not be reversed. What are the pros and cons?

•Less uncertainty for LBG – good for investors, staff, customers.
•Too much competition may have led the UK banking industry to its 2007 state.
•Costs to be saved from having to de-merge HBOS or key businesses.
•Taxpayer may be able to sell shares at a profit earlier than anticipated, thus providing more revenues to the government and further reducing the National Debt and interest costs.

•Should the merger have happened? Discussed ad nauseam already. It’s done!
•EU competition rules? Do they really suit this sort of emergency?
•Less choice for the consumer? There’s still plenty in the UK, how much choice is too much?
•Dragging-down of Lloyds TSB – the only real argument that stands up.

What would have happened if HBOS had been allowed to fail? We had already experienced IceSave and Northern rock. The UK was in crisis thanks to competition in part. Did we really want another series of pictures of penioners queueing up to withdraw their savings? As it was, many lost all or a substantial part of their savings if these were in Lloyds-TSB shares.

Competition in the UK banking industry has not really reduced, despite the FT claiming that Britain's "Top 5" banks now have 85% of the "market" (of which "market" is not clear). This means that each has an average 17% (as opposed to 14% when HBOS was still "alive"). Competition increases through market forces, not regulation.

We are where we are, the deed is done. Given the circumstances, it was the best of an unpalatable set of options at the time. With the UK taxpayer owning just shy of 50% of LBG and substantially more of RBS, perhaps reform for the best can be forced on two of the UK’s “giants” which will, in turn, see change for the better in the rest of the UK financial services market. Can it be done?

I was born overseas and have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

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