Lloyds has agreed a stay of execution regarding Aberdeen Asset Management’s lucrative contract to run Scottish Widows money, which it could lose as a result of its merger with Standard Life.
Yesterday Standard Life and Aberdeen published a prospectus, with fresh detail on the two companies’ £11 billion merger.
The document refers to the fact Aberdeen Group is party to various agreements with Lloyds Bank. In 2013 Aberdeen bought Scottish Widows Investment Partnership (Swip) from Lloyds in a cash and shares deal that cost Aberdeen £550 million. The deal saw Lloyds take a 9.9% stake in Aberdeen. The Swip business still manages money for Lloyds.
Swip was renamed Aberdeen Asset Investments Limited. At the time the deal £136 billion in assets under management to Aberdeen’s operations. According to Aberdeen's latest full year results to September 2016, it added £137 million in revenues as the group's largest client.
According to the prospectus, because of the merger Lloyds ‘has the right to exercise termination rights’ and ‘make certain material unscheduled withdrawals of assets'.
However, it said Lloyds has agreed to delay making a decision in relation to the exercise of such termination rights or withdrawals until six months from the date of completion of the merger.
‘If Lloyds elects to exercise any such applicable termination rights or make such withdrawals,’ it said, ‘this may have an adverse effect on the financial position of the combined group.’
If Lloyds decides to end any of the arrangements, it will give at least 12 months’ notice prior to withdrawing its funds under management.
The document said: 'The combined group looks forward to working with Lloyds to explore ways to build on Aberdeen’s existing partnership.'
The contract with Lloyds to run Widows money was worth £137 million in revenue to Aberdeen in the last financial year to September 2016 and was originally scheduled to have a term of at least eight years.
The key tension for Lloyds is the prospect of Scottish Widows selling products managed by a group that includes its arch rival Standard Life.
However, the fact Lloyds has agreed to defer any decision until six months from the merger, and to promise at least 12 months’ notice before withdrawal, is instructive. Despite the rivalry it is not wholly in Lloyds’ interests to pull out of the deal as it will be a substantial shareholder in the newly merged group.