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Lloyds sinks after rejection
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December 13, 2000: 8:53 a.m. ET
British bank considers options after Abbey rejects new offer; analysts eye hostile bid
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LONDON (CNNfn) - Lloyds TSB PLC shares fell Wednesday, with the bank mulling its position after Abbey National PLC spurned a renewed £18.2 billion ($26.3 billion) takeover offer a day earlier.
The bank gave no details on its next move, but said it was considering its options following the rebuff. Abbey is already in merger talks with Bank of Scotland PLC.
Analysts said that it would be hard for Lloyds to increase its offer and that making a formal, hostile takeover bid was the only option left to Lloyds, apart from walking away.
Consumer groups, meanwhile, have warned that further consolidation in the banking industry could leave customers with less choice and worse service.
 Lloyds (LLOY), the most profitable bank in Britain and its fourth-largest by assets, fell as much as 3.3 percent Wednesday, but recovered somewhat to stand 1.4 percent lower at 678 pence in midday trade.
Abbey, Britain's second-biggest mortgage lender, said Tuesday after the market close it had rejected the offer of 1.5 Lloyds shares and 260 pence in cash for every Abbey share.
Abbey called Lloyds' proposal "inadequate and uncertain." Last week, it rejected Lloyds' initial offer as unattractive.
"The deal at this level is barely financially advantageous (to Lloyds)," said James Johnson, banking analyst at Crédit Lyonnais Securities. "It makes it difficult for them to come out with a higher offer."
Johnson and other analysts said they didn't expect Lloyds to come back with a hostile offer just yet.
"A hostile bid for Abbey is potentially imminent, but it's hard to think they will come out with a deal until Abbey does a deal with Bank of Scotland or Bank of Scotland walks away," said Justine Shih, European banking analyst at Commerzbank Securities in London.
An Abbey Lloyds tie-up would create a bank with market value of some £54 billion while a combined Abbey-Bank of Scotland firm would be worth about £25 billion.
Abbey (ANL) shares were down 2 percent at 1,156 pence while Bank of Scotland (BSCT) was 0.4 percent lower at 695 pence.
Customers left out in the cold
Regulatory risks have generally been dismissed by analysts as surmountable, but Crédit Lyonnais' Johnson said that he had concerns the enlarged firm could hit antitrust problems.
"The competition issues are bigger than Lloyds is making out," he said.
 Analysts say a combined Lloyds Abbey bank would have some 30 percent of the checking account market share and between 20 and 25 percent of outstanding British mortgages.
Any merger Abbey may sign up to is seen as narrowing competition and giving customers a worse deal in terms of service and rates, consumer advocacy groups have argued.
"It's not in the consumers' best interests, it's in the shareholders' best interests," said Stuart Cliffe, chief executive of the Association of Bank Customers.
"More and more people are being left out in the cold in the closure of branches," Cliffe said. The disappearance of local banks, particularly in rural areas, has become a contentious issue in Britain.
The U.K. financial sector has seen a string of mergers this year. Barclays PLC (BARC) bought rival Woolwich for £5.4 billion in August and Royal Bank of Scotland (RBOS) is in the process of integrating National Westminster, which it bought for £21 billion in February after beating out the challenge of Bank of Scotland to acquire the London-based bank.
Mick McAteer, policy advisor for the Consumer Association, said that a merger between any of the big banking players would cut competition and result in customers "getting a worse deal."
"People in the U.K. are more likely to get divorced than change their bank accounts," said. 
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