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Why Daniels’ transformational deal was waiting to happen

Anybody throwing a superficial glance at Eric Daniels’ CV in June 2003 could have been forgiven for erroneously assuming that his appointment was a signal that Lloyds had tired of its conspicuous failure to tie up a merger with a European partner, having rediscovered an appetite for international expansion towards the end of the 1990s.

Lloyds/HBOS: the shotgun wedding years in the making

Why Daniels’ transformational deal was waiting to happen

That appetite had been lost, quite spectacularly, following Lloyds’ ghastly exposure to Latin American debt in the 1980s. That culminated in a £715 million loss in 1989 (well over £1 billion in today’s money), still regarded as the biggest loss in UK banking history, notwithstanding RBS’s recent efforts to top it. That disaster prompted a renewed focus in the 1990s on good old-fashioned domestic banking under Sir Brian Pitman, which saw Lloyds build up a solid UK empire through its merger with TSB and its acquisitions of the Cheltenham & Gloucester building society and the life insurance and fund management group Scottish Widows.

By the early 2000s, Lloyds TSB’s scope for further local expansion appeared to have hit the buffers. In July 2001, the government ruled that its proposed £18.2 billion takeover of Abbey National, which would have created the UK’s second-largest bank, was against the public interest. That left Lloyds TSB’s frustrated chief executive, Peter Ellwood, to resume a search for a European partner that had involved fruitless discussions with Deutsche Bank and others.

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