“U.K. competition officials blocked banking group Lloyds TSB PLC’s proposed 19 billion pounds ($26.77 billion or 31.56 billion euros) bid for mortgage bank Abbey National PLC, forcing both to look elsewhere for growth,” writes Silvia Ascarelli in today’s Wall Street Journal.

“The decision, which had been expected, is seen as putting an end to any major deal-making among the biggest U.K. banks. Lloyds is the U.K.’s third-largest bank, and Abbey National ranks sixth.”

“The focus has been turned on smaller United Kingdom companies, such as Alliance & Leicester PLC, Bradford & Bingley PLC and Northern Rock PLC, which are still considered possible acquisition targets. Shares in Northern Rock jumped 5.5% to 607 pence; both Alliance & Leicester and Bradford & Bingley, while up more modestly, also outpaced the broader market. Lloyds closed 1% higher at 670 pence, and Abbey fell 0.8% to 11.73 pounds.”

“The Lloyds-Abbey ruling ‘says any further consolidation between the major banks in the U.K. is pretty much over,’ said Matthew Barrett, chief executive officer of Barclays PLC, Britain’s fourth-largest bank. The decision also demonstrates a need for ‘clarity on what the rules of the game are on market share,’ he said.”

“While Abbey National said it intends to expand in the U.K., possibly beyond its core mortgage and savings markets, Mike Ferry, Lloyds deputy group CEO, repeated that Lloyds remains interested in a deal with a continental European retail bank. ‘We look to Europe for long-term growth,’ he said.”

“However, analysts played down the possibility of a major cross-border deal involving a U.K. bank. Lloyds has been open to a cross-border deal for years, but didn’t pull one off at a time when its shares were highly valued, they said. Moreover, regulators in some countries might frown upon a foreign takeover. Continental banks don’t look upon British banks as preferred merger partners because the British banks’ relatively big market capitalizations put them in the position of an acquirer, rather than an equal merger partner. The managements of most major European banks want to retain influence, rather than be swallowed. Lloyds itself held talks with Fortis NV, the Dutch-Belgian banking and insurance group, over a long period of time, but talks failed to yield a deal.”