Offer for Abbey Nat. - Part 2

Lloyds TSB Group PLC
31 January 2001


PART 2 OF 3

APPENDIX III

Conditions and further terms of the Offer

The Offer, which will be made by Merrill Lynch and J.P. Morgan on behalf of
Lloyds TSB once the pre-conditions set out in appendix I to this announcement
have been satisfied or waived, will comply with the applicable rules and
regulations of the UK Listing Authority, the London Stock Exchange and the
Code, will be governed by English law and will be subject to the jurisdiction
of the courts of England.  In addition, it will be subject to the terms and
conditions set out in the Offer Document and the Form of Acceptance.

Conditions of the Offer

The Offer will be subject to the following conditions: 
(a) valid acceptances being received (and not, where permitted, withdrawn) by
3.00 p.m. on the first closing date (or such later time(s) and/or date(s) as
Lloyds TSB may, subject to the rules of the Code, decide) in respect of not
less than 90 per cent. (or such lesser percentage as Lloyds TSB may decide) in
nominal value of the Abbey National Shares to which the Offer relates,
provided that this condition will not be satisfied unless Lloyds TSB (together
with its wholly-owned subsidiaries) shall have acquired or agreed to acquire
(pursuant to the Offer or otherwise) Abbey National Shares carrying in
aggregate more than 50 per cent. of the voting rights then exercisable at a
general meeting of Abbey National.  For the purposes of this condition:
(i)   Abbey National Shares which have been unconditionally allotted shall
be deemed to carry the voting rights they will carry upon issue; and
(ii)  the expression 'Abbey National Shares to which the Offer relates'
shall be construed in accordance with sections 428 to 430F of the Act;
(b) admission of the New Lloyds TSB Shares (i) to listing on the Official List
becoming effective in accordance with paragraph 7.1 of the Listing Rules and
(ii) to trading on the London Stock Exchange's market for listed securities
becoming effective in accordance with paragraph 2.1 of the Standards, or (if
Lloyds TSB so determines and subject to the consent of the Panel) the UK
Listing Authority and the London Stock Exchange agreeing to admit such shares
to listing and trading respectively;
(c) the passing at an extraordinary general meeting of Lloyds TSB (or at any
adjournment of the meeting) of all necessary resolutions as are necessary to
approve and implement the Offer and the acquisition of any shares in Abbey
National, to increase the authorised share capital of Lloyds TSB and to confer
authorities for the creation and allotment of the New Lloyds TSB Shares;
(d) the FSA having notified Lloyds TSB in writing in terms satisfactory to
Lloyds TSB that it does not object to any person who will pursuant to the
Offer become a controller of Abbey National or any other member of the wider
Abbey National Group for the purposes of the Banking Act 1987 or the period
allowed under such Act for the FSA to notify any objections to any such person
becoming a controller having expired without notification of such objection;
(e) the FSA, acting on behalf of the PIA, having notified its approval in
writing in terms satisfactory to Lloyds TSB in respect of each person who will
pursuant to the Offer become a controller of Abbey National or any other
member of the Wider Abbey National Group for the purposes of the Rules of the
PIA;
(f) the FSA, acting on behalf of IMRO, having notified its approval in writing
in terms satisfactory to Lloyds TSB in respect of each person who will
pursuant to the Offer become a controller of Abbey National or any other
member of the wider Abbey National Group for the purposes of the Rules of IMRO
or the period allowed under the Rules of IMRO to notify any objections to any
such person becoming a controller having expired without notification of such
objection;
(g) the FSA, acting on behalf of the SFA, having notified its approval in
writing in terms satisfactory to Lloyds TSB in respect of each person who will
pursuant to the Offer become a controller of Abbey National or any other
member of the wider Abbey National Group for the purposes of the Rules of the
SFA;
(h) all relevant regulators (as defined in Regulation 46 of the Investment
Services Regulations 1995) having notified Lloyds TSB in writing in terms
satisfactory to Lloyds TSB that they do not object to any person who will,
pursuant to the Offer and/or pursuant to the acquisition by Lloyds TSB of any
Abbey National Shares or other securities in, or control of, Abbey National,
become a controller of any member of the Wider Abbey National Group for the
purposes of those Regulations, or the period allowed under those Regulations
for such relevant regulators to notify any objections to any such person
becoming a controller having expired without notification of any such
objection;
(i) the FSA having notified Lloyds TSB in writing in terms satisfactory to
Lloyds TSB that it does not object to any person who will, pursuant to the
Offer and/or pursuant to the acquisition by Lloyds TSB of any Abbey National
Shares or other securities in, or control of, Abbey National, become a
controller of Abbey National or any other member of the Wider Abbey National
Group for the purposes of the Insurance Companies Act 1982, or the period
allowed under such Act for the Financial Services Authority to notify any
objections to any such person becoming a controller having expired without
notification of any such objection;
(j) the Office of Fair Trading indicating, in terms satisfactory to Lloyds
TSB, that it is not the intention of the Secretary of State for Trade and
Industry to refer the proposed acquisition of Abbey National by any member of
the Lloyds TSB Group or any matter arising therefrom to the Competition
Commission;
(k) to the extent that the Irish Mergers, Takeovers and Monopolies (Control)
Act, 1978 as amended (the 'Mergers Act') is applicable, the Minister for
Enterprise, Trade and Employment of Ireland having stated in writing, pursuant
to section 7(a) of the Mergers Act, in terms satisfactory to Lloyds TSB, that
she does not intend to make an order under section 9 of that Act in relation
to the acquisition of Abbey National or, in the event of the said Minister
making an order under section 9 prohibiting the acquisition of Abbey National
except on conditions specified in the said order, Lloyds TSB (acting in its
absolute discretion) having decided to accept such conditions or, in the event
of no order under that section being made and the said Minister not stating in
writing that she does not intend to make such an order, the relevant period
within the meaning of section 6 of that Act having elapsed;
(l) the Minister for Enterprise, Trade & Employment of Ireland indicating in
terms satisfactory to Lloyds TSB that she does not intend, pursuant to the
European Communities (Life Assurance) Framework Regulations 1994, to oppose
the proposed acquisition by Lloyds TSB of a qualifying holding, as defined in
the said Regulations, in Abbey National and/or any member of the Wider Abbey
National Group which would result from the implementation of the Offer, or the
applicable period referred to in those Regulations having elapsed without the
said Minister having opposed the proposed acquisition;
(m) the Minister for Finance of Ireland pre-clearing, in terms satisfactory to
Lloyds TSB, the proposed change in control in any member of the Wider Abbey
National Group which would result from the implementation of the Offer as
required by the terms of any certificates issued to any such company pursuant
to Section 446(2) of the Taxes Consolidation Act, 1997 of Ireland;
(n) the Central Bank of Ireland having approved, in terms satisfactory to
Lloyds TSB, the proposed acquisition of any member of the Wider Abbey National
Group which would result from the implementation of the Offer pursuant to the
European Communities (Undertakings for Collective Investment in Transferable
Securities) Regulations, 1989 of Ireland and any notices or regulations issued
by the Central Bank of Ireland pursuant thereto;
(o) the Insurance Supervisor of the Insurance and Pensions Authority of the
Isle of Man (the 'Supervisor') having notified Lloyds TSB in writing, pursuant
to section 20 of the Isle of Man Insurance Act 1986, and in terms satisfactory
to Lloyds TSB, that it has no objection to any person (whether an individual
or a body corporate) who will pursuant to the Offer and or pursuant to the
acquisition by Lloyds TSB of any Abbey National Shares or other securities in,
or control of Abbey National, become a controller of Abbey National or any
other member of the Wider Abbey National Group or the period allowed under
such Act for the Supervisor to notify any objections to any such person
becoming a controller having expired without notification of such objection;
(p) no undertakings or assurances being sought from Lloyds TSB, any member of
the Lloyds TSB Group or any member of the Abbey National Group by the
Secretary of State for Trade and Industry or any other Third Party (as defined
below), except on terms satisfactory to Lloyds TSB;
(q) all necessary filings having been made, all or any applicable waiting and
other time periods under any applicable legislation or regulations of any
jurisdiction (including, without limitation, in the United States the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended) and the
regulations made thereunder) having expired, lapsed or been terminated as
appropriate in each case in respect of the Offer and the acquisition of any
Abbey National Shares in, or control of, Abbey National by any  member of the
Lloyds TSB Group and all necessary statutory and regulatory obligations in
connection with the Offer in any jurisdiction having been complied with;
(r) the approval of Lloyds TSB's acquisition of Abbey National by the Board of
Governors of the US Federal Reserve System and by such other federal and state
regulatory authorities of the United States or any State thereof as may be
requisite having been obtained and remaining in full force and effect in terms
satisfactory to Lloyds TSB and the expiration of all applicable statutory
waiting periods in respect thereof, or arrangements satisfactory to the Board
of Governors of the US Federal Reserve System or such other federal and state
regulatory authorities as aforesaid having been put in place in relation to
the operation of the US activities of the wider Abbey National Group pending
the completion of the US regulatory approval processes;
(s) (i) Abbey National not having, on or following the date of this
announcement, entered into any agreement, arrangement or understanding in
relation to the acquisition of shares in Bank of Scotland or any joint
venture, business combination or other transaction between Abbey National and
Bank of Scotland (an 'Arrangement') or, any Arrangement having been entered
into, such Arrangement having been rescinded or terminated and (ii) any offer
having been made by Abbey National for Bank of Scotland, such offer having
lapsed or been withdrawn;
(t) no government or governmental, quasi-governmental, supranational,
statutory, regulatory or investigative body, trade agency, court, professional
association or any other body or person in any jurisdiction (each a 'Third
Party') having decided to take, institute or threaten any action, proceeding,
suit, investigation, enquiry or reference, or having required any action to be
taken or otherwise having done anything or having enacted, made or proposed
any statute, regulation, decision or order and there not continuing to be
outstanding any statute, regulation, decision or order which would or might:
(i)       make the Offer, its implementation or the acquisition of any Abbey
National Shares by any member of the Wider Lloyds TSB Group void,
unenforceable or illegal or restrict, prohibit, delay or otherwise interfere
with the implementation of, or impose additional conditions or obligations
with respect to, or otherwise challenge or require amendment of, the Offer or
the acquisition of any Abbey National Shares by any member of the Wider Lloyds
TSB Group;
(ii)       require, prevent or delay the divestiture or alter the terms
envisaged for such divestiture by any member of the Wider Lloyds TSB Group or
by any member of the Wider Abbey National Group of all or any part of their
respective businesses, assets or properties or impose any limitation on their
ability to conduct their respective businesses or to own any of their
respective assets or properties; 
(iii)       impose any limitation on, or result in a delay in, the ability of
any member of the Wider Lloyds TSB Group to acquire or hold or to exercise
effectively, directly or indirectly, all rights of ownership of shares or
other securities (or the equivalent) in Abbey National or on the ability of
any member of the Wider Abbey National Group or any member of the Wider Lloyds
TSB Group to hold or exercise effectively any rights of ownership of shares or
other securities in or to exercise management control over any member of the
Wider Abbey National Group;
(iv)       require any member of the Wider Lloyds TSB Group or the Wider Abbey
National Group to acquire or offer to acquire any shares or other securities
(or the equivalent) in any member of the Wider Abbey National Group or any
asset owned by any third party (other than in the implementation of the
Offer);
(v)       require, prevent or delay a divestiture, by any member of the Wider
Lloyds TSB Group, of any shares or other securities (or the equivalent) in
Abbey National; 
(vi)       result in any member of the Wider Abbey National Group ceasing to
be able to carry on business under any name which it presently does so;
(vii)       impose any limitation on the ability of any member of the Wider
Lloyds TSB Group or any member of the Wider Abbey National Group to integrate
or co-ordinate all or any part of its business with all or any part of the
business of any other member of the Wider Lloyds TSB Group and/or the Wider
Abbey National Group; or 
(viii)       otherwise affect the business, assets, profits or prospects of
any member of the Wider Lloyds TSB Group or any member of the Wider Abbey
National Group; and all applicable waiting and other time periods during which
any such Third Party could decide to take, institute or threaten any such
action, proceeding, suit, investigation, enquiry or reference or otherwise
intervene having expired or been terminated;
(u) all necessary filings having been made in connection with the Offer and
all statutory and regulatory obligations in any jurisdiction having been
complied with and all Authorisations necessary or appropriate in any
jurisdiction for or in respect of the Offer and the acquisition or the
proposed acquisition of any shares or other securities in, or control of,
Abbey National by any member of the Wider Lloyds TSB Group having been
obtained in terms and in a form satisfactory to Lloyds TSB from all
appropriate Third Parties and all such Authorisations necessary or appropriate
to carry on the business of any member of the Wider Abbey National Group in
any jurisdiction having been obtained and all such Authorisations remaining in
full force and effect at the time at which the Offer becomes otherwise
unconditional and there being no notice or intimation of an intention to
revoke, suspend, restrict, modify or not to renew any such Authorisations;
(v) there being no provision of any arrangement, agreement, licence, permit,
lease or other instrument to which any member of the Wider Abbey National
Group is a party or by or to which any such member or any of its assets is or
may be bound or be subject or any circumstance which could, as a consequence
of the Offer or the acquisition or the proposed acquisition by any member of
the Wider Lloyds TSB Group of any shares or other securities (or the
equivalent) in Abbey National or because of a change in the control or
management of any member of the Wider Abbey National Group or otherwise, could
or might result in:
(i)       any monies borrowed by, or any other indebtedness, actual or
contingent, of any member of the Wider Abbey National Group being or becoming
repayable, or capable of being declared repayable, immediately or prior to its
or their stated maturity, or the ability of any such member to borrow monies
or incur any indebtedness being withdrawn or inhibited;
(ii)       the rights, liabilities, obligations, interests or business of any
member of the Wider Abbey National Group or any member of the Wider Lloyds TSB
Group under any such arrangement, agreement, licence, permit, lease or
instrument or the interests or business of any member of the Wider Abbey
National Group or any member of the Wider Lloyds TSB Group in or with any
other firm or company or body or person (or any agreement or arrangements
relating to any such business or interests) being terminated or adversely
modified or affected or any onerous obligation or liability arising or any
adverse action being taken thereunder;
(iii)       any member of the Wider Abbey National Group ceasing to be able to
carry on business under any name under which it presently does so;
(iv)       any assets or interests of any member of the Wider Abbey National
Group being or falling to be disposed of or charged or any right arising under
which any such asset or interest could be required to be disposed of or
charged or could cease to be available to any member of the Wider Abbey
National Group;
(v)       the creation or enforcement of any mortgage, charge or other
security interest over the whole or any part of the business, property or
assets of any member of the Wider Abbey National Group;
(vi)       the value of, or the financial or trading position or prospects of,
Abbey National or any member of the Wider Abbey National Group, or of the
Enlarged Group as a whole, being prejudiced or adversely affected; or
(vii)       the creation of any liability (actual or contingent) by any member
of the Wider Abbey National Group;
(w) no member of the Wider Abbey National Group having since 31 December 1999
(save as disclosed in the Annual Report and Accounts of Abbey National or the
Interim Results or publicly announced through the London Stock Exchange prior
to the date of this announcement):
(i)       issued or agreed to issue or authorised or proposed the issue of
additional shares of any class, or securities or securities convertible into,
or exchangeable for, or rights, warrants or options to subscribe for or
acquire, any such shares or convertible securities (save as between Abbey
National and wholly-owned subsidiaries of Abbey National and save for the
issue of Abbey National Shares to employees on the exercise of options granted
before the date of this announcement in the ordinary course);
(ii)       recommended, declared, paid or made or proposed to recommend,
declare, pay or make any bonus, dividend or other distribution other than to
Abbey National or one of its wholly-owned subsidiaries; 
(iii)       merged with or demerged from or acquired any body corporate,
partnership or business or acquired or disposed of, or, other than in the
ordinary course of business, transferred, mortgaged or charged or created any
security interest over, any assets or any right, title or interest in any
asset (including shares and trade investments) or authorised, proposed or
announced any intention to do so; 
(iv)       made, authorised, proposed or announced an intention to propose any
change in its loan capital; 
(v)       issued, authorised or proposed the issue of any debentures or (save
as between Abbey National and its wholly-owned subsidiaries) incurred or
increased any indebtedness or contingent liability to any extent;
(vi)       entered into or varied or announced its intention to enter into or
vary any contract, transaction, arrangement or commitment (whether in respect
of capital expenditure or otherwise) which is of a long term, unusual or
onerous nature, or which involves or could involve an obligation of a nature
or magnitude which is, in any such case, material in the context of the Wider
Abbey National Group or which is or is likely to be restrictive on the
business of any member of the Wider Abbey National Group or the Wider Lloyds
TSB Group;
(vii)       entered into or varied the terms of any service agreement with any
director of the Abbey National Group; 
(viii)       implemented, effected, authorised or proposed or announced its
intention to implement, effect, authorise or propose any reconstruction,
amalgamation, commitment, scheme or other transaction or arrangement;
(ix)       purchased, redeemed or repaid or proposed the purchase, redemption
or repayment of any of its own shares or other securities or reduced or made
any other change to any part of its share capital;
(x)       waived or compromised any claim otherwise than in the ordinary
course of business;
(xi)       made any alteration to its memorandum or articles of association or
other incorporation documents;
(xii)       taken or proposed any corporate action or had any action or
proceedings or other steps instituted or threatened against it for its
winding-up (voluntary or otherwise), dissolution, reorganisation or for the
appointment of any administrator, administrative receiver, trustee or similar
officer of all or any of its assets or revenues or any analogous proceedings
in any jurisdiction or appointed any analogous person in any jurisdiction;
(xiii)       been unable, or admitted in writing that it is unable, to pay its
debts or having stopped or suspended (or threatened to stop or suspend)
payment of its debts generally or ceased or threatened to cease carrying on
all or a substantial part of its business; or
(xiv)       entered into any contract, commitment, agreement or arrangement or
passed any resolution with respect to or announced an intention to effect or
propose any of the transactions, matters or events referred to in this
paragraph;  
(x) since 31 December 1999 (except as disclosed in the Annual Report and
Accounts of Abbey National or the Interim Results):
(i)       there having been no adverse change in the business, assets,
financial or trading position or profits or prospects of any member of the
Abbey National Group;
(ii)       no litigation, arbitration proceedings, prosecution or other legal
proceedings having been threatened, announced or instituted by or against or
remaining outstanding against any member of the Wider Abbey National Group or
to which any member of the Wider Abbey National Group is or may become a party
(whether as plaintiff or defendant or otherwise) and no enquiry or
investigation by or complaint or reference to any Third Party against or in
respect of any member of the Wider Abbey National Group having been
threatened, announced or instituted or remaining outstanding, against or in
respect of any member of the Wider Abbey National Group; and
(iii)       no contingent or other liability of any member of the Abbey
National Group having arisen or become apparent to Lloyds TSB;

(y) Lloyds TSB not having discovered that:
(i)       any financial, business or other information concerning the Wider
Abbey National Group publicly disclosed or disclosed to any member of the
Wider Lloyds TSB Group at any time by or on behalf of any member of the Wider
Abbey National Group is misleading, contains a misrepresentation of fact or
omits to state a fact necessary to make the information contained therein not
misleading; or
(ii)       any member of the Wider Abbey National Group or partnership,
company or other entity in which any member of the Wider Abbey National Group
has a significant economic interest and which is not a subsidiary undertaking
of the Abbey National Group is subject to any liability, contingent or
otherwise, which is not disclosed in the Annual Report and Accounts of Abbey
National or the Interim Results;
(z) in relation to any release, emission, discharge, disposal or other fact or
circumstance which has impaired or might impair the environment or harm human
health, no past or present member of the Wider Abbey National Group having in
a manner or to an extent which is material in the context of the Offer, 
(i) committed any violation of any laws, statutes, regulations, notices or
other requirements of any Third Party; and/or 
(ii) incurred any liability (whether actual or contingent) to any Third Party.

Lloyds TSB reserves the right to waive in whole or part all or any of
conditions (c) to (z) inclusive.  Conditions (b) to (z) inclusive must be
satisfied as at, or waived (where possible) on or before, the 21st day after
the later of the first closing date and the date on which condition (a) is
fulfilled (or, in each case, such later date as the Panel may agree).   Lloyds
TSB shall be under no obligation to waive, or to determine to be or treat as
fulfilled, any of conditions (b) to (z) inclusive by a date earlier than the
date specified above for the fulfilment thereof notwithstanding that the other
conditions of the Offer may at such earlier date have been waived or fulfilled
and that there are at such earlier date no circumstances indicating that any
of such conditions may not be capable of fulfilment.

If Lloyds TSB is required by the Panel to make an offer for Abbey National
Shares under the provisions of Rule 9 of the Code, Lloyds TSB may make such
alterations to the above conditions as are necessary to comply with the
provisions of that Rule.

Further terms of the Offer

Fractions of New Lloyds TSB Shares will not be allotted or issued to accepting
Abbey National Shareholders.  Fractional entitlements to New Lloyds TSB Shares
will be aggregated and sold in the market and the net proceeds of sale
distributed pro rata to the Abbey National Shareholders entitled thereto, save
that individual entitlements to amounts of less than £3.00 will be retained
for the benefit of the Combined Group.

The Offer will lapse if it is referred to the Competition Commission before
3.00 p.m. on the later of the first closing date and the date on which the
Offer becomes or is declared unconditional as to acceptances. If the Offer so
lapses the Offer will cease to be capable of further acceptance and persons
accepting the Offer and Lloyds TSB will cease to be bound by Forms of
Acceptance submitted on or before the time when the Offer lapses. 
In the event that the Offer is recommended by the Board of Abbey National,
Lloyds TSB anticipates that it would be implemented by way of a court approved
scheme of arrangement of Abbey National under the Act and reserves the right
to alter the Offer structure in these circumstances.


APPENDIX IV

Estimated 2000 results

1. Directors' confirmation

The Directors confirm, subject to unforeseen circumstances and on the bases
and assumption set out below, the statement regarding the estimated results of
the Lloyds TSB Group for the year ended 31 December 2000 set out in the
section entitled 'Estimated 2000 results' on pages 15 to 17 of this
announcement (the 'Statement').

The Statement has been reported on by PricewaterhouseCoopers, Merrill Lynch
and J.P. Morgan who have given and not withdrawn their consent to the
publication of their letters relating to the Statement in this appendix IV.

2. Bases, assumption and notes

(a)       Basis of preparation

The estimated 2000 results have been prepared using the same accounting
policies as are set out in the Lloyds TSB Report and Accounts for the year
ended 31 December 1999, except as noted below, and are based on the unaudited
consolidated management accounts for the year ended 31 December 2000.

During 2000 there have been the following changes in accounting policy:

(i) Lloyds TSB has implemented the requirements of Financial Reporting
Standard 15, 'Tangible Fixed Assets,' which has resulted in two changes.  The
Group's freehold and long leasehold premises were previously included in the
balance sheet at a valuation on the basis of existing use value.  Following
the implementation of the new standard the Group's premises will no longer be
revalued, and a prior year adjustment has been made to restate the carrying
value to historical cost.  The effect of this change upon the Group's profit
and loss account is not significant.

In addition, Lloyds TSB has reassessed the useful economic lives and residual
values of its freehold and long leasehold premises and with effect from 1
January 2000, the cost of these properties, after deducting the value of land,
is being depreciated over 50 years.  Previously it was considered that the
residual values were such that depreciation was not significant.  The effect
of this change has been to increase the depreciation charge in 2000 by £8
million.

(ii) Lloyds TSB has also reflected the requirements of the Finance and Leasing
Association Statement of Recommended Practice and changed the presentation of
assets held for leasing to customers under operating lease agreements.  These
assets are now included in tangible fixed assets and depreciation charged over
their estimated useful economic lives; rental income received from customers
is included within other operating income.  This change has had no effect on
profit before tax.

(b)       Assumption

The Statement is based on the assumption that no events will arise between the
date of this announcement and the date on which Lloyds TSB approves its
audited results for 2000 (expected to be 15 February 2001) which will have to
be reflected in the 2000 results in accordance with UK Generally Accepted
Accounting Principles.
 
(c)       Notes to the estimated 2000 results

(i) Earnings per share are calculated by dividing the profit attributable to
shareholders of £2,724 million (1999, £2,514 million) by the weighted average
number of ordinary shares in issue of 5,487 million (1999, 5,445 million).

(ii) A number of items had a significant impact on Lloyds TSB's 2000 results:
short term fluctuations in investment returns, changes in the economic
assumptions applied to Lloyds TSB's long-term assurance business, exceptional
restructuring costs, the impact of provisions for redress to past purchasers
of pension policies, a one-off charge relating to stakeholder pensions and in
1999 the sale and closure of businesses.  'Business as usual operating profit'
excludes the effect of these items.

(iii)       Short term fluctuations in investment returns represent the
difference between 'normalised' investment earnings on the reserves held by
the Group's life and general insurance companies, and actual investment
earnings.  For further information see Lloyds TSB Group's 2000 interim results
announcement dated 28 July 2000.

(iv)       Following the acquisition of the business of Scottish Widows, a
detailed review of the economic assumptions used in the embedded value
calculation has been carried out, to ensure that these assumptions remain
appropriate for the enlarged life and pensions business in the context of
forecast long-term economic trends.  As a result of this review, certain
assumptions have been amended, including the risk-adjusted discount rate which
has been reduced from 10 per cent. to 8.5 per cent.  The revised assumptions,
which have been used with effect from 1 January 2000 for Abbey Life and the
bancassurance operation of Lloyds TSB Life, have resulted in a one-off credit
to the profit and loss account of £127 million.


(v)       The profit and loss account includes a charge for exceptional
restructuring costs relating to the Group's efficiency programme announced in
February 2000.  The exceptional restructuring costs also included a £21
million restructuring provision to cover the costs of integrating Chartered
Trust and Lloyds UDT.  The expenditure on e-commerce in 2000 has not been
treated as an exceptional item.

3. Letter from PricewaterhouseCoopers            Pricewaterhouse Coopers       
                                                 Southwark Towers
                                                 32 London Bridge Street
                                                 London SE1 9SY
                                                 Telephone [phone]
                                                           [phone]
                                                 Facsimile [phone]
                                          

The Directors                            Merrill Lynch International          
    
Lloyds TSB Group plc                     Ropemaker Place 
71 Lombard Street                        25 Ropemaker Street
London                                   London 
EC3P 3BS                                 EC2Y 9LY

                                         J.P. Morgan plc 
                                         125 London Wall
                                         London 
31 January 2001                          EC2Y 5AJ  

Dear Sirs

We have reviewed the basis of compilation and the accounting policies for the
profit estimates of Lloyds TSB Group plc ('the Company') and its subsidiary
undertakings (together 'the Group') for the year ended 31 December 2000 as set
out on pages 15 to 17 and on pages 30 to 32 of the Company's announcement
dated 31 January 2001.

We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued by the Auditing Practices Board.

The profit estimates, for which the Directors of the Company are solely
responsible, include the published unaudited interim results for the six
months ended 30 June 2000 and the results shown by unaudited management
accounts for the six months ended 31 December 2000.

In our opinion the profit estimates have been properly compiled on the bases
stated and the basis of accounting is consistent with the accounting policies
of the Company.

This report is provided solely to the Directors of Lloyds TSB and to Merrill
Lynch International and J.P. Morgan plc in connection with Rule 28.3 of the
City Code on Takeovers and Mergers and for no other purpose.  We accept no
responsibility and, to the fullest extent permitted by law, exclude all
liability to any other person other than Lloyds TSB and its Directors in
respect of this opinion or the work undertaken in connection with this
opinion.

Yours faithfully


PricewaterhouseCoopers
Chartered Accountants 



4. Letter from Merrill Lynch and J.P. Morgan

J.P. Morgan plc                                   Merrill Lynch International
125 London Wall                                   Ropemaker Place
London EC2Y 5AJ                                   25 Ropemaker Street
                                                  London EC2Y 9LY


Regulated by SFA                                  Regulated by SFA
Registered in England                             Registered in England
Reg. No. 248609                                   Reg. No. 2312079


The Directors
Lloyds TSB Group plc
71 Lombard Street
London EC3P 3BS

31 January 2001

Dear Sirs

We refer to the statement made by Lloyds TSB Group plc ('Lloyds TSB') as set
out on pages 15 to 17 and pages 30 to 32 of the Company's announcement dated
31 January 2001 (the 'Announcement') regarding the estimated results of the
Lloyds TSB Group for the year ended 31 December 2000 (the 'estimates').

We have discussed the estimates and the bases and assumption on which they are
made with the Directors and officers of your company and with
PricewaterhouseCoopers.  We have also discussed the accounting policies and
calculations for the estimates with PricewaterhouseCoopers.  We have
considered their letter of today's date addressed to yourselves and ourselves
on this matter.

As a result of these discussions and having regard to the letter from
PricewaterhouseCoopers, we consider that the estimates, for which you, as
Directors of Lloyds TSB, are solely responsible, have been made with due care
and consideration.

This report is provided solely to the Directors of Lloyds TSB in connection
with Rule 28.3 of the City Code on Takeovers and Mergers and for no other
purpose.  We accept no responsibility and, to the fullest extent permitted by
law, exclude all liability to any other person other than Lloyds TSB and its
Directors in respect of this opinion or the work undertaken in connection with
this opinion.


Yours faithfully

for and on behalf of                            for and on behalf of
J.P. Morgan plc                                 Merrill Lynch International

Terry Eccles                                    Matthew Greenburgh
Vice Chairman                                   Managing Director
Investment Banking


APPENDIX V

Statement of estimated revenue benefits

1. Summary

The Board of Lloyds TSB estimates that the combination of Lloyds TSB and Abbey
National will enable the Combined Group to generate increased revenue of
approximately £450 million per annum in the fourth financial year (2005)
following completion of the transaction, which, after bad and doubtful debt
provisions, costs and insurance claims is expected to result in an additional
contribution to profit before tax of approximately £250 million per annum in
the same year.  These figures accommodate potential customer loss.

To put this number in context the operating revenues and profits before tax of
Lloyds TSB were £,266 million and £2,142 million respectively for the six
months ended 30 June 2000, excluding restructuring charges; those of Abbey
National were £1,919 million and £922 million respectively relating to ongoing
business for the six months ended 30 June 2000.  The aggregates of these are
£6,185 million and £3,064 million respectively.

As well as extending its delivery channels and providing additional products
to Abbey National customers, Lloyds TSB will introduce its customer management
capabilities into the Abbey National network.  Lloyds TSB was identified in a
recent industry survey as the UK's leading financial services company in the
cross-sale of products and services to its personal customers.  Lloyds TSB has
an average 2.30 Lloyds TSB products per personal customer whilst Abbey
National has an average 1.75 Abbey National products per personal customer. 
Furthermore, Lloyds TSB's mortgage customers hold on average 4.55 Lloyds TSB
products.

The Board of Lloyds TSB believes that the estimated additional contribution to
profit before tax from revenue benefits will occur in the following key areas

* Personal banking (£80 million) - Lloyds TSB believes that, by introducing
its sales processes and differentiated products, Lloyds TSB will improve
cross-sales of, inter alia, personal loans  and credit cards to Abbey National
customers.  Lloyds TSB will also introduce its added value accounts, which
offer travel insurance, roadside assistance cover and other services, to Abbey
National customers

* Business banking and asset finance (£80 million) - Lloyds TSB has been
successful in winning the business accounts of TSB customers.  Lloyds TSB
believes that it can achieve similar success with Abbey National's personal
customers going into or presently running their own business.  In asset
finance, Lloyds TSB is confident that its combination of customer
segmentation, mailing management, risk management and delivery through central
and branch (specialist loan centres) channels will increase the cross-sale of
personal loans and related products to the First National customer base 



* General insurance (£70 million) - Lloyds TSB is a market leader in the
distribution of personal lines insurance in the UK, one of the largest
distributors of payment protection insurance and the largest distributor of
household insurance.  Abbey National's large customer base provides a
substantial opportunity to increase sales of general insurance products
further, particularly payment protection and household insurance

* Wealth management (£20 million) - Lloyds TSB believes it can generate
increased revenues from extending its wealth management products and services
to Abbey National customers and from increased sales of life, pensions and
unit trust products

The estimated revenue benefits figure of £250 million takes no account of any
potential increase or decline in revenues that might have been achieved by
either bank on a stand-alone basis.  This statement of estimated revenue
benefits should be read in conjunction with the notes to this appendix and the
further details set out below.

The above estimated revenue benefits are given in the money of the year in
which they are expected to be achieved.

The above estimates should not be interpreted to mean that the earnings per
share of the enlarged Lloyds TSB Group for the current or future financial
years will necessarily match or exceed the historical published earnings per
share of Lloyds TSB.

2. General basis of preparation

The senior management of the relevant business units constructed detailed
'bottom up' estimates of the additional revenues and associated contribution
to profit which should result from a transaction with Abbey National.  These
estimates were based on public information, industry benchmarks and the
experience of Lloyds TSB.  Where readily available, information was gathered
on Abbey National's business volumes, product penetration, sales processes,
systems capabilities, product offering, pricing and marketing strategies. 
Senior management has reviewed the business units' estimates and related
assumptions.  Senior management has also considered the key areas for
potential revenue loss as a result of the transaction and has taken this into
account.  Lloyds TSB has not had access to any information prepared by Abbey
National that is not in the public domain and has not had the opportunity to
discuss the reasonableness of the plans or assumptions supporting the
estimated revenue benefits with the management of Abbey National.

The statement of estimated revenue benefits has been reported on under the
Code by PricewaterhouseCoopers and by Lloyds TSB's financial advisers (Merrill
Lynch and J.P. Morgan).


3. Notes

a) In arriving at the statement of estimated revenue benefits set out in this
appendix, the Board of Lloyds TSB has assumed that

* there will be no significant impact on the business of the Enlarged Group
arising from any decisions made by competition or regulatory authorities

* there will be no material change to the market dynamics in the Enlarged
Group's core markets following completion of the Offer

* there will be no unforeseen difficulties in the integration of Abbey
National's businesses with those of Lloyds TSB, including, where appropriate,
in the migration of the businesses onto the relevant platform and systems

* there is no contract (the existence or terms of which are undisclosed) that
could affect the timing or realisation of revenue benefits

* Abbey National becomes a wholly-owned subsidiary of Lloyds TSB before the
end of the third quarter of 2001

* general economic conditions in the UK are not less favourable than expected

* either (i) the banking transfer provisions in Part VII of the Financial
Services and Markets Act 2000 shall come into force and by not later than mid
2003 Lloyds TSB shall have obtained the necessary Court orders to enable its
merger integration plans to be implemented or (ii) by not later than mid 2003
Royal Assent shall have been given to a Private Act of Parliament promoted by
Lloyds TSB enabling it to implement such merger integration plans

* there are comparable operations, processes and procedures within Abbey
National, except where publicly available information clearly indicates
otherwise

b) Lloyds TSB management, through its understanding of Lloyds TSB's marketing
strategies and productivity relative to the overall financial services sector
and Abbey National, has estimated the source and scale of potential revenue
benefits. In addition to Lloyds TSB's management information, the sources of
information which Lloyds TSB has used to arrive at the estimated revenue
benefits include the following

* Abbey National's annual reports and accounts
* Abbey National's presentations to analysts
* Abbey National's website
* brokers' research
* independent market research, including relative penetration levels, customer
satisfaction levels and customer overlap
* other public information


* Lloyds TSB's knowledge of the industry and of Abbey National

c) The Board has not had discussions with Abbey National's management
regarding the reasonableness of their assumptions supporting the estimated
revenue benefits.

d) Due to the scale of a combined Abbey National and Lloyds TSB organisation,
there may be additional changes to the Enlarged Group's product offering,
customer focus and marketing strategies.  

e) Because of the factors set out in this appendix, and the fact that the
estimates relate to the future, there are inherent risks in these forward
looking estimates and the resulting revenue benefits may be materially greater
or less than those estimated.

f) The statement of estimated revenue benefits set out in this appendix has
been reviewed by PricewaterhouseCoopers and by Merrill Lynch and J.P. Morgan. 
Copies of a letter from PricewaterhouseCoopers and a letter from Merrill Lynch
and J.P. Morgan relating to this statement are set out below.


4. Letter from PricewaterhouseCoopers            Pricewaterhouse Coopers       
                                                 Southwark Towers
                                                 32 London Bridge Street
                                                 London SE1 9SY
                                                 Telephone [phone]
                                                           [phone]
                                                 Facsimile [phone]

The Directors                     Merrill Lynch International 
Lloyds TSB Group plc              Ropemaker Place 
71 Lombard Street                 25 Ropemaker Street
London                            London 
EC3P 3BS                          EC2Y 9LY

                                  J.P. Morgan plc 
                                  125 London Wall
                                  London 
                                  EC2Y 5AJ  

31 January 2001

Dear Sirs

Offer for Abbey National plc ('Abbey National')

We refer to the statement of the estimated net revenue benefits ('the
Statement') made by the Directors of Lloyds TSB Group plc ('Lloyds TSB') set
out in appendix V to the announcement dated 31 January 2001. 

Responsibility
The Statement is the sole responsibility of the Directors of Lloyds TSB.  It
is our responsibility and that of Merrill Lynch International ('Merrill
Lynch') and J.P. Morgan plc ('J.P. Morgan') to form our respective opinions,
as required by Note 8(b) to Rule 19.1 of the City Code on Takeovers and
Mergers ('the Code'), as to whether the Statement has been made by the
Directors of Lloyds TSB with due care and consideration.

Basis of opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued by the Auditing Practices Board.

We have reviewed the relevant bases of belief (including sources of
information) and calculations underlying the Statement.  We have discussed the
Statement together with the relevant bases of belief (including sources of
information) with the Directors of Lloyds TSB and those officers and employees
of Lloyds TSB who developed the underlying plans, and with Merrill Lynch and
J.P. Morgan.  Our work did not involve any independent examinations of any of
the financial or other information underlying the Statement.  We have also
considered the letter dated 31 January 2001 from Merrill Lynch and J.P. Morgan
to the Directors of Lloyds TSB on the same matter.

As described in the notes of appendix V to the announcement, the estimated net
revenue benefits are subject to uncertainties which are beyond the control of
Lloyds TSB.  We do not express any opinion as to the achievability of the
estimated net revenue benefits identified by the Directors of Lloyds TSB.

Opinion
In our opinion, based on the foregoing, the Statement has been made with due
care and consideration, in the context in which it was made.

Our work in connection with the Statement has been undertaken solely for the
purposes of reporting under Note 8(b) to Rule 19.1 of the Code to the
Directors of Lloyds TSB and to Merrill Lynch and J.P. Morgan.  We accept no
responsibility to Abbey National or its shareholders or any other person
(other than Lloyds TSB and its Directors and Merrill Lynch and J.P. Morgan) in
respect of, arising out of or in connection with that work.

Yours faithfully


PricewaterhouseCoopers
Chartered Accountants 






5. Letter from Merrill Lynch and J.P. Morgan



J.P. Morgan plc                                   Merrill Lynch International

125 London Wall                                   Ropemaker Place
London EC2Y 5AJ                                   25 Ropemaker Street
                                                  London EC2Y 9LY


Regulated by SFA                                  Regulated by SFA
Registered in England                             Registered in England
Reg. No. 248609                                   Reg. No. 2312079


The Directors
Lloyds TSB Group plc
71 Lombard Street
London EC3P 3BS


31 January 2001

Dear Sirs

Offer for Abbey National plc ('Abbey National')

We refer to the statement of the estimated net revenue benefits ('the
Statement') made by the Directors of Lloyds TSB Group plc ('Lloyds TSB') set
out in appendix V to the announcement dated 31 January 2001, for which the
Directors of Lloyds TSB are solely responsible.

We have discussed the Statement, together with the relevant bases of belief
(including sources of information), with the Directors of Lloyds TSB and those
officers and employees of Lloyds TSB who developed the underlying plans.  Our
work did not involve any independent examinations of any of the financial or
other information underlying the Statement.  We have also reviewed the work
carried out by PricewaterhouseCoopers and have discussed with them the
conclusions stated in their letter of 31 January 2001 addressed to yourselves
and ourselves on this matter.

We have relied on the accuracy and completeness of all the financial and other
information reviewed by us and have assumed such accuracy and completeness for
the purposes of rendering this letter.

As described in the notes of appendix V to the announcement, the estimated net
revenue benefits are subject to uncertainties which are beyond the control of
Lloyds TSB.  We do not express any opinion as to the achievability of the
estimated net revenue benefits identified by the Directors of Lloyds TSB.

Our work in connection with the Statement has been undertaken solely for the
purposes of reporting under Note 8 (b) of Rule 19.1 of the City Code on
Takeovers and Mergers to the Directors of Lloyds TSB and for no other purpose.
We accept no responsibility and, to the fullest extent permitted by law,
exclude all liability to any person other than Lloyds TSB and its Directors in
respect of, arising out of or in connection with that work. 

In our opinion, based on the foregoing, the Statement, for which the Directors
of Lloyds TSB are solely responsible, has been made with due care and
consideration, in the context in which it has been made.

Yours faithfully

for and on behalf of                    for and on behalf of
J.P. Morgan plc                         Merrill Lynch International

Terry Eccles                            Matthew Greenburgh
Vice Chairman                           Managing Director
Investment Banking


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