Payouts check on Widows

LLOYDS TSB is holding talks with the Financial Services Authority to calculate how much capital its Scottish Widows life insurance arm needs to satisfy new accounting standards.

City analysts believe that Lloyds TSB, which is worth about £24bn, may be the subject of a takeover approach once the situation is resolved. That should be soon.

Abbey National cut payouts to 60,000 life insurance policyholders in July, but announced that it did not need to inject new capital into either its Scottish Mutual or Scottish Provident businesses. This followed discussions with the City watchdog.

Shortly afterwards, Spain's Banco Santander launched a takeover bid for Abbey National, indicating that confusion regarding the capital position of the bank's life insurers had initially deterred it.

City analysts believe similar fears may be putting off bidders for Lloyds TSB.

Earlier this year, Lloyds TSB said it believed Scottish Widows had sufficient capital to cover the new 'realistic reporting requirements' introduced by the FSA, which concern a firm's ability to cover potential claims.

Lloyds TSB's insurance and investments division, which includes Scottish Widows, generated profits of £378m, up 10%, in the first six months of the year.