Examination of Witnesses (Question Numbers
60-79)
RT HON
LORD MANDELSON,
SIR BRIAN
BENDER AND
MR JOHN
EDWARDS
21 OCTOBER 2008
Q60 Mr Edwards: I would be delighted
to receive an invitation.
Lord Mandelson: Then you can see
for yourself, because you get a different view of it.
Chairman: I accept the invitation! We
will move to banks.
Q61 Mr Weir: There has been some
concern raised by the competition within the banking sector following
the creation (if it goes ahead) of the Lloyds/HBOS merger, such
that the bank would control 30% of the current account market,
28% of the mortgage market, 25% of the savings and 21% of the
personal loans market. It has also been pointed out that together
with the part-nationalised Royal Bank of Scotland in Scotland
the situation is a wee bit worse because the two groups control
over 70% of the market. Does that give you concern from a competition
point of view?
Lord Mandelson: I am always alert
to competition issues and potential abuse of market dominance.
I am a hawk when it comes to defending the consumer against inappropriate
behaviour by companies in a market. However, as I have made clear
from my speech in the Lords last Thursday, when I was moving an
Order that would give us the necessary power to enable us to take
into account the public interest issues surrounding this merger,
that is not to the exclusion of competition aspects and competition
considerations. If the merger goes ahead, the merged bank would
not be sheltered from competition law as it goes forward from
now, and were there to be evidence of market abuse the normal
powers would be available to the competition authorities to step
in and to protect consumers. So we are introducing an additional
consideration, not one that replaces the current competition criterion
for judging the appropriateness and acceptability of that merger.
Q62 Mr Weir: But, by implication,
that is accepting that the market position it will have when launched
(if the merger goes ahead) is acceptable to control 30% of the
current account market, for example, within the UK. You are accepting
that is—
Lord Mandelson: The OFT will report
on this. The OFT will submit a report to me—I think it is
due by the end of this week. In fact, they will produce two reports:
one on competition issues and the other on the public interest
issues of stability in the UK financial system. So there will
be two reports looking to the two dimensions on this, which we
have now incorporated into UK law as a result of the amendment
to the legislation that we have invited Parliament to endorse.
So I will await those reports, I will evaluate them both and I
will not be ignoring one in order to focus exclusively on the
other (you can be most assured of that), but as we go forward
we have to keep their activities and behaviour under proper review,
and I know that the OFT will do that.
Q63 Mr Weir: The takeover was mooted
prior to the Government's injection of billions into the whole
banking sector. Given that the circumstances have changed, Consumer
Focus, for example, has pointed out that HBOS could perhaps survive
as a separate entity through that cash injection, rather than
being taken over by Lloyds. Do you think that is a possibility,
moving forward?
Lord Mandelson: I do not think
that is likely to become attractive either to HBOS or Lloyds.
The Government's intervention and the recapitalisation that we
have offered, and which they have accepted, is predicated on a
merger of the two.
Q64 Mr Weir: They are still separate
entities, as I understand it, and they have been offered recapitalisation
separately. Would that recapitalisation still be available to
the two separate entities if they decided not to proceed with
the merger?
Lord Mandelson: As I have said,
the recapitalisation that we have offered is predicated on the
merger going ahead.
Q65 Mr Weir: It is going into separate
entities at the moment. Are you saying they would not get that
recapitalisation if this merger did not go ahead?
Lord Mandelson: I am saying that
that would entirely change the proposition, and create one in
which the current assumptions would therefore no longer apply.
However, to be honest, I have not heard either from HBOS or Lloyds
TSB that they are thinking of de-merging before they have even
come together. You may have more information on that than I have.
Q66 Mr Weir: Is that not a decision
for the shareholders, of which the Government is now, obviously,
potentially, a very large one, as to whether the merger—
Lord Mandelson: I have not had
any indication from other shareholders that they may wish to follow
the course that you are hypothecating.
Q67 Mr Weir: I am not pushing a course;
I am questioning. What is the Government's view, as a shareholder?
Would they be voting for a merger of the two institutions?
Lord Mandelson: We, of course,
are not yet a shareholder, in the sense that our recapitalisation
and our holding have yet to be fully negotiated and agreed. As
I have already said to you, the action we are taking is predicated
very clearly on a merger of the two taking place.
Q68 Mr Weir: We will take that as
a "yes" then. Part of the Government's view in pushing
ahead with the recapitalisation is that there are certain conditions
relating to help for small businesses, but there is a situation
now where some of the banks are part-nationalised and some are
not. How are you going to get those banks which are not part-nationalised
to go along with your desire to be lenient to small businesses
during the recession?
Lord Mandelson: I am very concerned
by what I heard last week from representatives of the small businesses,
who I met at the Department last Thursday, and their descriptions
of some of the difficulties that small businesses are experiencing
with banks. The anecdotal evidence from small firm representatives
is that credit lines are being tightened, that the terms and conditions
for original loans are being changed and that refinancing is taking
place in a way that is more favourable to the banks because of
their view that the risk of their lending has become greater.
If that is not difficult enough for the small businesses, in some
cases banks are charging higher administrative costs to make these
changes in the terms and conditions of the refinancing of those
lending facilities. So it is a double-whammy that they face. Alistair
Darling and I have invited the chief executives of all the banks,
not only those that are asking for recapitalisation by the Government,
and that meeting will be taking place in the next week or so.
We will be discussing this situation with them and asking them
to approach—not simply at sort of board level or headquarters
level but on the ground, at branch level—these adjustments
with far greater discretion, understanding and sensitivity to
the financial situation that many small businesses are finding
themselves in.
Chairman: Mike, do you have any other
questions on competition in relation to the banks, because Brian
Binley wants to do small businesses?
Q69 Mr Weir: One final question then.
One of the other conditions was that bonuses would not be paid
to traders, but The Guardian is reporting this morning
that the Chief Executive of Lloyds TSB is saying to his employers
that they are still getting their bonuses. How do you feel about
that?
Lord Mandelson: You are ahead
of me on the news. I have not read my Guardian today or,
indeed, any other newspaper today because I have been busy in
Cabinet. So I am really behind the curve on that. It is something
that we would, obviously, look at and I am sure it is something
that the Treasury will wish to discuss with those banks seeking
recapitalisation.
Chairman: Julie has some questions on
banks, not related to small businesses, and then we will turn
to small businesses and Brian Binley.
Q70 Miss Kirkbride: I was intrigued
by your answers about how the HBOS merger will be subject to normal
competition rules, because there is a view in the market that
Lloyds does not need this merger and would not need recapitalisation
if it was not taking on HBOS, in which case it would be able to
give whatever it likes to its employees. What is it in Lloyds'
interest to do this if you are going to subject them to normal
competition rules?
Lord Mandelson: I do not speak
for Lloyds. I am not a senior manager or member of the board of
Lloyds; I really cannot speak for their decision to seek recapitalisation.
They obviously have information that has caused them to make this
request. It is something I think you would really have to put
to Lloyds themselves.
Q71 Miss Kirkbride: As a shareholder
of Lloyds, the interest that I would have in doing this is that
I would have a privileged position in the market. You are now
telling me that I will not have it, so why would I want to go
ahead with it?
Lord Mandelson: In what way have
I said that they do not have a privileged position—
Q72 Miss Kirkbride: Because they
would be subject to the normal competition rules, whereas the
interest to Lloyds in all of this is that they get 30% of the
banking market at the end of it.
Lord Mandelson: Of course they
must be subject, in their behaviour in the market, to normal competition
rules. Would anyone say that the normal competition rules should
be suspended?
Q73 Miss Kirkbride: They are being
ignored to allow it to go through, are they not? So, therefore,
what is—
Lord Mandelson: All we are doing
is adding an additional criterion about financial stability and
the public interest in securing that as rapidly as possible. Our
judgment is that this merger and the accompanying recapitalisation
may well be in the public interest, and that is why we have introduced
legislation that enables us to look at that and attach weight
to do that alongside the weight that we will attach to the other
report from the OFT concerning competition.
Q74 Miss Kirkbride: However, in the
future, the fact that they have 30% of the market will not in
itself be a reason to launch a competition inquiry?
Lord Mandelson: Not in itself,
but that will depend on their behaviour. If the OFT wants to raise
further issues along the road and wants to deliver a report to
me or to the Competition Commission, it is open to the OFT to
do so.
Q75 Miss Kirkbride: You will be aware
that when the Government let it be known that this merger was
going to go ahead special privileges were given to employment
in Scotland for the HBOS headquarters up there, but no specific
provision was made about the jobs in Halifax. Do you think that
is fair, as the Secretary of State who is involved with employment?
Lord Mandelson: This is precisely
the sort of regional dimension which it is important to identify
and bring the Regional Development Agencies into play, so that
they can address employment implications of what is happening—
Q76 Miss Kirkbride: So Yorkshire
Forward should be finding new jobs for Halifax employees in Halifax,
whilst jobs in Scotland are going to stay in the banking industry.
Is that what you are saying?
Lord Mandelson: I am sure that
Yorkshire Forward will be very active indeed, as all the RDAs
will be in—
Q77 Miss Kirkbride: Why should the
jobs in Halifax be the ones that go rather than the ones in Scotland?
Why should there be any decision by the Government as to which
ones are more important, as opposed to that being a commercial
decision?
Lord Mandelson: You are making
a bit of an assumption there about jobs—
Q78 Miss Kirkbride: It is in the
document.
Lord Mandelson:— in Halifax.
All I can say to you is that I have already seen representatives
of the RDAs and I think they are going to have a crucial role
to play in the coming months and years. They have proven their
ability to intervene to operate with flexibility, to deliver resources,
to underpin the work of other public sector bodies and to work
very closely with the business community in order to both safeguard
jobs and generate new ones. They are going to have a lot of people
looking to them during this coming period, and they are going
to have to really be at the peak of their game in order to respond
to those expectations. It demonstrates to me the wisdom of the
Government in creating the Regional Development Agencies.
Q79 Chairman: You are talking yourself
into coming and giving evidence to us in our inquiry into Regional
Development Agencies. As soon as we get the Sub-National Review
published we will have you in and you can talk about them. You
are talking yourself into another session.
Lord Mandelson: If you want both
of us, I will be there. It just shows, if I may conclude, that
RDAs have, in my opinion, a good track record and their speedy,
flexible and decisive ability to deliver is going to be even more
important—
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