EUROPE - Insight Investment and Scottish Widows Investment Partnership (SWIP) could be merged into a £200bn (€250bn) asset management house as Halifax Bank of Scotland (HBOS) is in talks with rival Lloyds TSB following fresh falls in its share price.

Many, largely UK-based, pension funds currently mandate the two firms to provide asset management and liability-driven investment (LDI) services and the deal could change the status of Insight if Lloyds TSB - the parent to SWIP - were to buy its parent HBOS.

The deal is now being viewed as a rescue attempt to prevent the UK government from having to take responsibility for HBOS, as the firm's share price has lost approximately a third of its value in the last two days of stock market trading.

This drop in share value continued even though the  Financial Services Authority issued a statement earlier today stating it as "satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way".

A statement issued by HBOS has now confirmed it is in talks with Lloyds "which may or not lead to an offer being made for HBOS".

Insight - not to be confused with the US asset manager Insight Investments - has been gradually building its position in the retail and institutional investment sector as the latest interim report from HBOS shows the firm saw net inflows of £8.7bn in the first six months of this year, to give the firm assets under management of £112bn, against £109.1bn in 2007.

SWIP, on the other hand, has assets under management of £90bn.

Among the pension funds HBOS and Insight currently work with, according to Pension Funds Online, are Barclays Bank, Dow Chemical Co UK Pension Trust, the Coal Pension Trustees schemes, the London Pension Fund Authority, the GlaxoSmithKline plc schemes and the UK pension fund of Swiss pharmaceutical giant Ciba Specialty Chemicals.

Both companies - Insight and SWIP - currently work with the Electricity Supply Pension Scheme while SWIP, interestingly, provides pensions investment services to Lehman Brothers and Bank of America UK pension plan, as well as others including British American Tobacco and UK Coal plc.

Insight has been working in particular on the development of its LDI products with Russell Investment Group for medium-sized pension funds so those arrangement could end up under review as Insight provides the hedging and risk management while Russell deliver the multi-manager technology.

Both operations also have retail financial services operations in both high street lending and life assurance, as Halifax supplies 20% of the UK's mortgage market - in part a reason why investors were concerned about the future of the company's finances - and owns life insurer Clerical Medical while Lloyds TSB is also active in the mortgage space and owns retail pensions provider Scottish Widows.

If the deal were to go ahead, it could however mean Lloyds TSB also has to take on HBOS' £5.7bn defined benefit scheme which according to the same HBOS report, had a deficit of £725m to 30 June 2008.

Lloyds TSB's Group own pension funds are listed as no. 31 in IPE's recent Top 100 pension funds survey, as the combined assets of its pension funds are worth €21.5bn.

Lloyds TSB had also bid an earlier stage to buy Northern Rock when the bank was on the brink of collapse but saw its offer rejected, forcing the UK government to effectively nationalise Northern Rock.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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