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Failed Scottish Widows merger behind Lloyds’ £109bn exit

A failed merger between Lloyds Banking Group’s subsidiary Scottish Widows and Standard Life Aberdeen’s pension and assurance arm was behind the FTSE 100 bank’s decision to terminate its contract with the fund group, it was revealed over the weekend.

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In a stock exchange announcement last week, SLA confirmed that it had lost its biggest client, LBG, after competition concerns prompted the bank to review its long-term asset management arrangements. The news that the fund group would be losing out on a £109bn ($153bn, €123bn) contract rattled its shares, which sank more than 5% on the day.

However, sources close to the discussions told Sky News and The Times that the heart of the row between Britain’s biggest high street bank and the fund group revolved around the dissolution of a £6bn mega-merger of their life insurance units.

The bank had been in discussions with the asset manager about pooling their life businesses since last June, before the merger between Standard Life and Aberdeen Asset Management was finalised. Talks reportedly broke down in mid-December after the Edinburgh rivals could not agree on the venture’s ownership structure.

The proposed insurance entity, estimated to have some £300bn in assets under management, would have been roughly 60% owned by Lloyds with the remainder owned by SLA. Sky News reported that the bank would have supplied both its chairman and chief executive.

According to sources, SLA preferred a joint venture structure with the newly created insurance company, Standard Widows, existing as a standalone entity.

This clashed with LBG’s ambitions of having full control over the insurance business, which it wanted to become a subsidiary of the bank.

Due to the difference of opinion, LBG boss Antonio Horta-Osorio said he had no choice but to cancel the £109bn contract with SLA, sources said.

Both Lloyds and SLA are due to report their final results this week, with Horta-Osorio set to unveil a three-year strategy for the bank, of which the £300m tie-up with SLA was supposed to be the centrepiece.

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