Speculation over Swip and Insight

The futures of Scottish Widows Investment Partnership (Swip) and Insight Investment were in question last week. Speculation grew that the two firms are set to be merged following the proposed acquisition of HBOS by Lloyds TSB. Combining the firms would create one of Britain’s biggest fund managers.

Swip, which is part of the Lloyds TSB group, runs some £90 billion in funds for a range of investors including individuals, investment trusts and local government pension funds.

Insight, which was formed by HBOS in 2002, managed £112 billion at the end of June. However, Swip has the larger retail fund management business. According to the Investment Management Association (IMA), Swip runs more than £12 billion for retail investors compared with about £1.6 billion at Insight.

Swip, Insight and HBOS all declined to comment on any likely corporate restructuring. Chris White, a fund manager and UK banks analyst at Threadneedle, says the viability of Swip and Insight as separate entities is unclear. HBOS will have to dispose of some assets, he adds, although its Australian business is “the logical place to start”.

White is supportive of the Lloyds/HBOS merger and its likely impact on the British banking sector, despite concerns that the capital position of the combined firm may be “a little bit light”. “It is a good deal for Lloyds and it will enhance value for shareholders over the long term,” he says. “The cost savings achieved will drive earnings growth forward over the next three years.”

White says such deals are necessary for a resolution of the banking crisis. “Banks are confidence institutions and there were concerns over the HBOS funding positions. It is a real positive that a weaker player has been taken out of the market. This is what happens in a credit crunch – the strong get stronger and pick up the weaker banks.” Bradford & Bingley remains vulnerable, he says.

Lloyds expects to complete the acquisition of HBOS early in 2009, subject to HBOS shareholder approval.