Widows deal could still be on cards for Resolution

THE path for any potential takeover bid for Scottish Widows by Clive Cowdery's Resolution Group has been smoothed by UK Financial Investments, The Scotsman understands.

The quango that monitors taxpayer stakes in British banks including Widows-owner Lloyds Banking Group is understood to have told Resolution that the offshore structure of the Guernsey-based group would not prevent a sale of the bank's life assurance arm to it.

It is believed Resolution, which has just bought Friends Provident for £1.86 billion, contacted UKFI after a leading City broker, Keefe, Bruyette & Woods, suggested the group's unconventional structure might prove a hurdle to any acquisition of Lloyds' assets.

Some MPs are also understood to be concerned that Resolution, which operates a private equity-style payment structure, could buy Lloyds' assets.

One source told The Scotsman: "UKFI confirmed to representatives of Resolution that any bid for Widows or Lloyds' other insurer, Clerical Medical, would be judged purely on commercial grounds. It would be treated like any other 'foreign' bid for those assets, such as a big American organisation coming in for them."

When Resolution, the self-styled consolidator of the insurance sector, bought Friends last week, it said it had identified nine potential other takeover targets that it said it knew "very well".

Widows is thought to be included. However, Lloyds has consistently denied it wishes to sell Widows.

Earlier this year, after extensive market research, the bank said that Widows was to be the main brand in the insurance division.

And last Wednesday Lloyds revealed that, as part of the £235m sale of the third-party fund management business of subsidiary Insight Investment, the in-house funds of Insight would be transferred to Scottish Widows Investment Partnership. Edinburgh would be a "centre of excellence" for fund management, it said.

One analyst said yesterday: "I think Cowdery would see Widows insurance as a very attractive asset. But even if UKFI has given Resolution some assurances on how any approach would be received, the bank does not look in any hurry to sell."

Lloyds is in talks with European Commission competition commissioner Nellie Kroes about the potential sale of assets as a trade-off for the state aid the British bank has received in return for a 43 per cent taxpayer stake.

However, it is thought the EC is more concerned about banking market shares at Lloyds than insurance.

One analyst said: "Perhaps Cowdery's best hope down the line is that Lloyds's strong tier one capital ratio may need bolstering once the taxpayer eventually bails out of the bank. Then Widows might be on the block."

It is thought Resolution might also be keener on the Scottish life assurer after Prudential and Aegon both ruled out selling their UK operations to Cowdery last week.

Both Resolution and Lloyds yesterday refused to comment.