HBOS: No bid for the Abbey

BANKING group HBOS has dramatically pulled out of the race for Abbey National in a move that leaves the way clear for Banco Santander Central Hispano to complete its £8.8bn takeover.

HBOS chief executive James Crosby said that despite 'crawling over' the Abbey business for more than a month, HBOS simply could not put together a strong enough case to launch a bid of its own.

'We have done a proper job and gone into boring, diligent detail,' he said. 'The challenge for us was always making sure we could create a deal that would mean there was great value in it for our shareholders.

'If you believe your business is going nowhere then it's easy to conclude that an acquisition enhances returns for shareholders but if you believe there's a lot of potential then it's a very high hurdle.'

He added: 'The heart tells you to make the acquisition, but the cold analysis tells you something different and we are paid to manage the business with our heads.'

Shares in Abbey immediately tumbled 5%, or 33 1/4p, to 576 3/4p as investors hoping for a mouth-watering bidding war sold out. HBOS leapt 4% or 30 1/2p to 745p to top the FTSE 100 risers.

BSCH chairman Emilio Botin issued a short statement saying he was very pleased the uncertainty surrounding the Spanish group's approach had finally disappeared.

Santander hopes to complete its acquisition on 12 November. Today it spelled out the details of planned cost-savings and intends to post its plans to Abbey shareholders on Friday.

Speculation about an HBOS bid continued until the weekend amid reports it had brought in KPMG to calculate the exact cost-savings it could extract from a deal. Crosby said these far exceeded market expectations.

He denied the group had pulled out because of a potential referral to the Competition Commission, insisting that the Commission's review of the sector when it blocked a bid by Lloyds TSB for Abbey in 2001 suggested HBOS would have had a strong case.

'They said they had no problem with competition in the mortgage sector and the real problem was in SME banking and current accounts. They said HBOS was a major force for competition.'

He added the group would be a 'fierce competitor' to Santander when it comes to the UK. 'I'm sure [Botin] will enjoy the welcome we'll give him on the High Streets of Britain.'

Shares in Santander fell 1.2% or 13 cents to €8.12 in Spain. It revealed plans today for a secondary listing in London early next year once the Abbey deal is completed.

James Leal, analyst at Teather & Greenwood, said he was disappointed HBOS had pulled out: 'Abbey was the last prize in UK banking and would have been a wonderful opportunity for HBOS. But it reflects well on HBOS management as they were level-headed enough to walk away.'