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Lord Mandelson, the Business Secretary, was accused of 'bully-boy tactics' yesterday over a legal challenge to the controversial merger of the HBOS and Lloyds TSB banks.
Lawyers for his department wrote last week to a consortium of businessmen who are fighting the move through the courts, warning that the six leading members could be held personally liable for costs if their case went ahead. If they dropped the case the department was prepared to waive the costs it had run up so far, the letter continued.
Members of the Scottish Parliament accused the minister of trying to intimidate the so-called Merger Action Group - who rejected the offer and will proceed to tribunal tomorrow.
An aide to Scottish First Minister Alex Salmond claimed the move suggested 'real concern' in the Westminster government that it might have a case to answer, adding: 'Lord Mandelson, whose conduct is under the closest scrutiny, would do well to leave the tribunal to determine the case instead of attempting to stack the deck.'
Margo MacDonald, an independent MSP, said the group should stand firm: 'I find it breathtaking that a group of responsible people whose only motive in taking this legal action is what best serves the public interest can be subjected to such threats and intimidation. But the question has to be asked: why is Lord Mandelson's legal team behaving in this way and employing these outrageous bullying tactics? Is it perhaps because they think they are going to lose?'
A spokesman for the Department of Business, Enterprise and Regulatory Reform insisted the letter was 'neither an ultimatum nor a threat' and was merely designed to offer the action group a chance to save their money, given the strength of the evidence.
The case, which will be heard at the Competition Appeal Tribunal tomorrow, reflects the action group's claims that due legal process was ignored in the rush to prop up the failing HBOS. It argues that Mandelson was 'fettered' by statements made by the Prime Minister and the Chancellor, rather than keeping an open mind on the merger. It also argues that the rescue deal involving Lloyds was superseded by a subsequent bailout package drawn up by the government which offered to buy stakes in ailing banks.
The case is becoming an increasing embarrassment to ministers who are anxious to conclude the merger. Gordon Brown was implicated in the negotiations when it emerged he had been spotted deep in conversation at a party with his old friend Sir Victor Blank, the chairman of Lloyds TSB, days before the deal was announced in September.
However, as the banking crisis worsened, doubts circulated in the City about whether it was still a good deal, while a report from the Office of Fair Trading warned that consumers could suffer higher mortgage rates and lower savings rates as the creation of a 'superbank' would reduce competition.
Mandelson overruled the watchdog and invoked his powers to suspend competition law in order to rubber-stamp the deal, arguing there was a strong public interest in doing so because of the risk to confidence in the banking system if a bank as big as HBOS imploded. The government had hoped the deal could be completed by January.
The SNP's Alex Neil said Gordon Brown should 'call off the attack dogs' over the issue.
- HBOS
- Lloyds TSB
- Peter Mandelson
- Economic policy
- Banks and building societies
- UK banking sector
- Scotland
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