Lloyds killed plan for £300bn Standard Life insurance merger

Britain's biggest high street bank killed off secret plans for a life insurance merger administering roughly £300bn of client assets following a row over the new venture's ownership structure.

Sky News has learnt that Lloyds Banking Group and Standard Life Aberdeen (SLA) had reached an advanced stage of talks about pooling their respective life insurance operations into a subsidiary of the ‎bank.

The venture would have been roughly 60%-owned by Lloyds, with the remainder owned by SLA.

The bank would have supplied both its chairman and chief executive, according to insiders.

Stock exchange announcements made this week by the two companies revealing Lloyds' decision to terminate its arrangement for SLA to manage £109bn of Scottish Widows and wealth management assets failed to mention the insurance merger plot.

Edinburgh-based SLA, which was only created last year by the £11bn merger of Aberdeen Asset Management (Frankfurt: 899502 - news) and Standard Life (LSE: SL.L - news) , saw its shares hit by the move following the announcement on Thursday.

Citing competition between Scottish Widows and SLA's insurance arm, Lloyds said it would review its long-term asset management arrangements, putting one of the City's biggest investment mandates up for grabs.

Sources said that SLA's management, led by co-chief executives Martin Gilbert and Keith Skeoch, were supportive of the broad framework‎ of the proposed insurance merger.

Lloyds was seeking control of the newly created entity in order to consolidate it on its balance sheet, but this demand is understood to have alarmed some members of SLA's board at a point when the talks were close to being completed.

Those directors are said to have favoured a joint venture structure with the insurance company existing as a standalone entity.

SLA would have had representation on the board of the insurance subsidiary, but the roles of chairman‎ and chief executive were to have been filled by Nick Prettejohn, Scottish Widows' chairman, and Antonio Lorenzo, who runs Lloyds' insurance and wealth operations.

As an independent company, it could have been worth in the region of £5bn, according to people involved in the talks.

However, Lloyds was adamant that it would only proceed on the basis that it would be a fully consolidated subsidiary of the bank.

The discussions concluded without that ownership issue being resolved late last year.
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While the assets managed by SLA on behalf of Lloyds represented roughly 17% of its total assets under management, they only accounted for about 5% of group revenues.

One source said that Lloyds' decision to terminate the SLA relationship was attracting attention from City watchdogs.

"We are disappointed by this decision in the context of the strong performance and good service we have delivered for LBG, Scottish Widows and their customers," Mr Gilbert and Mr Skeoch said on Thursday.

Next (Frankfurt: 779551 - news) week, Antonio Horta-Osorio, Lloyds' chief executive, will outline a new three-year strategy for the bank, with Scottish Widows' pensions and financial planning services expected to play a central role.

Lloyds also holds a small stake in SLA, which is separate to the asset management relationship, but this is expected to be offloaded in due course.

Lloyds and SLA both declined to comment this weekend.