Lloyds TSB prepares Abbey bid

THE battle for Abbey takes a new twist this week when Lloyds TSB prepares the ground for a potential bidding war that could scupper the £8.15bn agreed takeover by Spain's Banco Santander.

Lloyds TSB will appoint Deutsche Bank as its financial adviser. The move was sparked by last week's announcement from rival HBoS that it was considering launching a counterbid for Abbey.

Lloyds TSB has yet to make a final decision on whether to join the bidding, but one insider said: 'If other banks are thinking seriously about it, we have to be ready just in case.

'We would probably be mad not to have a go if somebody else did. It is not a simple situation, though. This would cost a lot of money and take up a lot of time, so it needs careful thought.'

Lloyds TSB's traditional adviser is JP Morgan, but that relationship is on hold because the US investment bank is advising Banco Santander. However, Deutsche did advise Lloyds TSB on the disposal of its New Zealand operations last year, so it knows the bank well.

If Lloyds TSB launched a counter offer for Abbey, it would be a case of history repeating itself. Four years ago, it gatecrashed an agreed merger between Abbey and Bank of Scotland with a £19bn conditional offer for the former building society.

The deal was blocked by the Competition Commission, however, on the grounds that it would have given Lloyds TSB a dominant position in current accounts, and that Abbey was an important-competitor on the High Street, particularly in small business banking.

Many analysts believe HBoS would also be blocked from buying Abbey because the deal would give it a 35% share of Britain's mortgage market.

It would also transform HBoS into the country's third-biggest High Street bank, after HSBC and Royal Bank of Scotland - a concept that alarms competitors.

News that Lloyds TSB has appointed advisers comes as a surprise because only last month chief executive Eric Daniels said: 'No large UK institution will get through the Competition Commission without a referral, and the chance of the referral being approved is slim.'

Abbey shares closed down 7p at 578p last week, but remain above Santander's offer price of 552p, suggesting that investors expect a rival bid to emerge.

A spokesman for Lloyds TSB declined to comment.