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September 22, 2008

All change in US, UK

A year after it began, the turmoil in the financialmarkets shows no sign of abating and ithas now claimed some of the best-known globalbanking names, who have been left withno option but to merge with larger rivals inorder to ensure survival.

By Verdict Staff

A year after it began, the turmoil in the financial markets shows no sign of abating and it has now claimed some of the best-known global banking names, who have been left with no option but to merge with larger rivals in order to ensure survival.

In the US, global investment brokerage Merrill Lynch was acquired by Bank of America (BofA) to create a banking powerhouse, after BofA turned away from acquiring Lehman Brothers, which announced its bankruptcy shortly after. The acquisition of Merrill Lynch gives BofA its long-sought-after goal of building up its own retail brokerage business, but it will also bolster BofA’s cards business, most notably in the high-end elite card and debit card segments.

Merrill Lynch’s card offerings include deferred debit cards as part of its cash management account proposition, and it also has a sizeable number of high net worth card customers. This will complement BofA’s primarily consumer-orientated cards business, according to Brian Riley, research director at US payments consultancy TowerGroup.

Lloyds/HBOS overtakes Barclaycard

“Bank of America’s acquisition of the Merrill Lynch card business brings more innovation than scale,” he said. “Merrill Lynch built its debit and credit card business into the top 20 rankings by addressing a sole market: high net worth. This added dimension offers Bank of America the opportunity to step into the top-tier of global private banking, putting it on an equal footing with high-end card product offerings from global banks such as Citi and JPMorgan Chase.”

Meanwhile, in the UK, Lloyds TSB announced plans to acquire HBOS, following a dramatic fall in the value of HBOS stock – which in itself partly came about due to worries over HBOS’s funding capabilities following the collapse of Lehman Brothers.

The proposed merger will see the emergence of a challenger to Barclaycard’s domination of the UK card market. According to their respective 2008 interim results, Lloyds TSB and HBOS had combined UK credit card balances of £13.3 billion ($24 billion), surpassing Barclaycard’s £9.3 billion in average outstanding UK balances in the same period.

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