 Lloyds TSB to Swap Scottish Widows for a German Bank?: Executives at Lloyds Bank TSB are currently reviewing several acquisition opportunities. Unlike many of its domestic and international competitors, the financial situation of Lloyds TSB is one of strength. Seeking to capitalize on the bank's financial health, managers are currently reviewing several different financial institutions in Europe, with a particular emphasis on those in Germany: Dresdner Bank, Postbank and Citigroup's German operation.
Recently, Dresdner has been hurt because of large losses that the bank incurred on its loans and investments. Thus, Allianz is considering the sale of Dresdner Bank. Dresdner's acquisition could be financed with a £6 billion purchase price, a rights offering, or (according to recent speculation) Lloyds TSB's could swap Scottish Widows life insurance division for the bank's retail operations. Exchanging Scottish Widows Life for Dresdner Bank is probably the least likely scenario to occur because Lloyds TSB executives have previously indicated that banc assurance is a central part of its operating strategy. These discussions are still in the preliminary stages.
One analyst believes that Lloyds TSB would damage its financial strength by entering the German banking market. However refined the German banking industry may be, it is still very fragmented and 80% of the market is controlled by state-owned and mutual banks. It is also possible that an unhealthy bank acquired by Lloyds TSB may turn out to be sicklier than anticipated, which would cause more problems for Lloyds executives.
Given the progress that Lloyds TSB has made after its problems of the last several years, entering an uncertain transaction is worrisome. The strong financial situation that Lloyds TSB currently enjoys is attributed to management's emphasis on traditional banking practices in the UK and the sale of foreign assets.
While capitalizing on the low prices of underperforming banks hurt by the credit crisis may be tempting, Lloyds TSB executives should also be concerned with squandering all of the improvements that have been realized in recent years. If Lloyds TSB finds itself once again having financial problems, extracting capital from Scottish Widows Life as it did in 2005 should not be permitted as this could lead to insurance premium increases for policyholders. In pursuing an ill-conceived acquisition of a troubled bank, Lloyds TSB may find itself a future target for larger institutions.
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NCD News: Lloyds TSB Insurance - 22.06.08
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