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Analyse This!

Analyst predictions have boosted the share price of both Abbey and HBOS over the last few weeks, as well as getting the hopes up of Abbey investors not keen on Santander. Of course City analyst predictions are just that – predictions. But to have misjudged the situation so badly is somewhat akin to pollsters predicting a win for Neil Kinnock’s Labour party in the 1992
general election, just hours before John Major’s Conservatives were re-elected.
Admittedly it was a tough call and the spectre of intervention from the Competition Commission was always a potential spanner in the works for HBOS or any major UK bank.
Following the decision by HBOS not to bid for Abbey, analysts Dresdner Kleinwort Wasserstein’s Arturo de Frias said there was a 15% chance that one of the other UK banks would enter the fray, LloydsTSB being the most obvious candidate.
But remember, analysts have been wrong before. James Crosby, chief executive of HBOS, cited the danger of paying too much for Abbey and being blocked by the Government as the main reasons for not bidding against Santander. If HBOS, the UK’s biggest lender, had won the battle for Abbey, the second biggest mortgage provider, the combined group would have accounted for well over a third of all mortgages in this country.
This had prompted suggestions that HBOS would have been forced to sell off one of its other lender brands, possibly Birmingham Midshires, in order to keep the Competition Commission happy. Perhaps in the final analysis (there’s that word again), HBOS felt the potential gains of
having Abbey in its stable were not enough to risk meddling with its already market winning formula.
Indeed, announcing the HBOS decision to pull out of the Abbey race, Crosby said: “The heart would have loved to have done it but the head says don’t compromise what you are already doing for your shareholders.”
It is also possible that HBOS realises that if Santander does buy Abbey, the deal marks something of a new development in UK financial services and one that is potentially more threatening to HBOS’s dominance. Santander is just one of a number of European financial
institutions eyeing up the UK market, especially the mortgage sector, which is considered to be one of the most successful and innovative in Europe.
I’ve said it before, but post-regulation we are bound to see consolidation amongst British lenders, as well as networks and intermediaries. It is very likely that Santander is the first of a number of overseas players looking to buy in the UK, grow their empire and build a European
presence that could give the likes of HBOS a run for its money. I wonder what the analysts will think of that?


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