UK clears Lloyds TSB takeover of HBOS

LONDON (Reuters) - British Business Secretary Peter Mandelson gave the go-ahead to Lloyds TSB's (LLOY.L) takeover of rival bank HBOS Plc HBOS.L on Friday despite concerns about the merger's impact on competition.

"I am satisfied that on balance the public interest is best served by allowing this merger to proceed without a reference to the Competition Commission," Mandelson said in a statement.

HBOS welcomed the decision and said it was a "major milestone."

"This deal is very much on track," HBOS spokesman Shane O'Riordain said.

Mandelson disregarded the advice of the Office of Fair Trading (OFT), which concluded after a month-long review that further investigation of the deal by the Competition Commission, Britain's competition watchdog, was warranted.

The OFT said in its report to Mandelson that the merger was likely to substantially reduce competition in the British market for mortgages, current accounts and banking services for small businesses.

Lloyds TSB announced last month it was rescuing HBOS, Britain's biggest mortgage lender, which had been hit by a deepening global financial crisis and concerns about its exposure to a weakening housing market.

The deal was only made possible because the government said it was prepared to waive the usual competition rules because of the turmoil in financial markets.

The deal would create a banking giant controlling about a quarter of British current accounts and 28 percent of home loans, which would normally have raised a competition red flag.

FINANCIAL STABILITY

The government changed the law to allow it to override competition law in the interest of maintaining the stability of the British financial system.

In its report to Mandelson, the OFT concluded: "Any relevant customer benefits in relation to the (takeover) do not outweigh the substantial lessening of competition."

Mandelson decided against a referral to the Competition Commission, ruling that the possible anti-competitive effects of the takeover identified by the OFT were outweighed by the public interest in preserving the stability of Britain's financial system.

"I recognize that there are some concerns about the possible effects of the merger on competition," Mandelson said.

"I am asking the Office of Fair Trading to continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy," he said.

Mandelson also took into account representations from the Bank of England, Financial Services Authority and the Treasury as well as submissions from other interested parties.

Lloyds has said it expects to complete its takeover of HBOS and a capital raising by January, after giving shareholders a vote on both in the third week of November.

Lloyds cut its offer price after the bailout and is now offering 0.605 of its shares per HBOS share, down from 0.833 originally.

(Additional reporting by Myles Neligan; Editing by Richard Hubbard and Simon Jessop)