In the City
Hands off the Royal
Jock Bruce-Gardyne A t the end of last month the Office of At
Trading held a talk-in at the Royal Commonwealth Society to celebrate its tenth anniversary. Norman Tebbit, as their sponsoring Minister, offered birthday greetings and what was generally inter- preted as a pledge of good behaviour towards them in the future. The days of capricious defiance from Victoria Street, of the OFT's recommendations and the Monopoly Commission's verdicts, we gathered, were over.
Well, the OFT has not lost much time in putting the Department's good intentions to the test. Although Sir Gordon Borrie is careful not to confirm them, the indications that he wants Lloyds Bank's pre-Christmas buying spree, which took their stake in the Royal Bank of Scotland up from 161/2 per cent to 21 per cent, gone over by the Monopolies Commission appear to be well- founded. Which poses an interesting con- undrum for Norman Tebbit and his Minis- ter for competition policy, Alex Fletcher.
Although it made no secret of its dis- pleasure at the Lloyds raid upon its equity, the Royal Bank is also not best pleased at the OFT's intervention. As less than 18 months have elapsed since the Commission completed its lengthy and delicate adjudica- tion on the rival bids for Royal Bank from Standard and Chartered and Hong Kong Shanghai, it is no doubt understandable that the Edinburgh bankers should be less than enthusiastic about the prospect of another time-consuming hassle with the Commission. Perhaps they have other wor- ries too. However initially unwelcome, Lloyds could prove a friend in need.
That is not the only — or indeed the most substantial — reason why the OFT's pro- position should give pause to ministers. All in all, it does look rather odd. First there is the little matter of precedents. The OFT is invoking a rarely-used provision of the legislation by which there may be a reference to the MMC when one company has bought sufficient shares in another to be in a position to exercise 'material in- fluence' over it. The OFT cites two previous references on these grounds: Lonrho's ac- quisition of its 29.9 per cent stake in House of Fraser in 1978, and Euro-Canadian's move to lift its stake in Furness Withy to 29 per cent in 1976.
In fact, the Lonrho reference offers dubious comfort. For the reference con cerned Lonrho's bid for SUITS, which coincidentally presaged a ten per cent in- crease in the Lonrho stake in House of Fraser. But there were all sorts of political wheels within wheels about that affair, including notably a Glasgow by-election which the then Labour government was anxious not to lose. And the outcome, as we are regularly reminded still, was that the Commission gave Lonrho its blessing, and then subsequently blocked a full-scale bid from the same source. Whether the result has constituted a condition of 'material in- fluence' for Lonrho in House of Fraser has remained a bone of contention ever since. In the opinion of Mr Tiny Rowland 'the contribution and "stimulus" provided to the management' of House of Fraser by its Lonrho directors 'have undoubtedly assisted' in the improvement in its pro- fitability. Professor Smith, House of Fraser, would presumably not agree.
The Euro-Canadian investment of Fur- ness Withy is a rather closer parallel. But in that case the matter of concern was a plan by the Swiss-based shipping group to merge a jointly-owned shipping line which it shared with Furness Withy into its own con- tainer operation. The Commission did not like that proposition, and told Euro- Canadian to reduce its stake to ten per cent within two years (which, in the event, it did not contrive to do). Now it is true that Lloyds and Royal Bank also have a jointly- owned subsidiary in Lloyds and Scottish, the hire-purchase business, of which Lloyds has indicated that it would be a willing buyer, and the Royal Bank of Scotland that it would be a willing seller: only the price divides them. But even if they could agree, that would be a very different proposition to the merging of a British and a foreign shipping line.
Apart from that, Lloyds has specifically denied any plans to take over Royal Bank, and Royal Bank has said that it believes it. To which the OFT would no doubt reply, `Ah, but plans may change'. As indeed they may. But the real lesson of the Lonrho precedent is that if 'material influence' becomes the launching-pad for a full-scale
bid then there is no reason why the Corn' mission should not be wheeled on at that stage — and put a stop to it. And given the existing concentration of branch banking in the UK it is surely inconceivable that a Lloyds bid for Royal Bank would not be referred: as Lloyds must be well aware. So maybe there are other scores to settle. Few of the Monopolies Commission's obiter dicta have been more extensively rub' bished than its report on the rival bids for Royal Bank in 1982. At the time it looked more like a stroke of luck for all concerned. But in retrospect the Commission's reiec: tion of both bids was seen as an ill" considered cave-in to the 'tartan mafin, coupled with the name of Mr Alex Fletcher, then in charge of industrial policy at the Scottish Office. Indeed according to one (American) report, the Prime Minister, no less, has let it be known that she thinks the reference to the Monopolies Commission was all a big mistake. Now we have a new Governor at the Bank of England, and a new Chancellor, and the impression seems to be gaining ground that a foreign bid for Royal Bank would enjoy a rather different reception. But of course the existence of a 21 per cent stake in the hands of Lloyds might be dee1111, ed a quite substantial roadblock. Yet to roll on the Monopolies Commission and then have it oblige Lloyds to dismantle the roan' block (if that were what it happened to decide) would seem a remarkably contrived way to wipe the slate clean. All the same, the pressures on Messrasi Tebbit and Fletcher to throw the ROY „ Bank back to the Commission must be powerful. The last adjudication left sail: nasty loose ends hanging: for example, sole Standard and Chartered and Hong K°",} Shanghai to be seen as indefinitely in bab' vis-a-vis the Royal Bank? So if the ministers decline to respond to the OFT's Pr°11IwL tings, they will not only be calling in clu'e's tion the sincerity of the 'hands offPleclgal towards the OFT; they will also have to run the gauntlet of charges of subservience Scottish parochialism once again. Yet villece all is said and done the case for a reference looks looks remarkably feeble. The logic off r Commission's verdict on the earlier bids ed Royal Bank may have been deeply flaw for my part I can see a perfectly resP;,; table case for turning down bids;11. independent businesses which are both w'e, ing and able to retain their independerlbcut not because of accidents of geography, 0, from the viewpoint that unnecessary e°01 centrations of commercial power are conducive to the public weal; that was "Ac• however, the case the Commission nla'cit, But two wrongs would not make a rigs`, even if perpetrated by such an august b
as the Monopolies Commission.
Previous page
