Lloyds CEO Antonio Horta-Osorio felt he had no choice but to cancel a £109bn investment contract with Standard Life Aberdeen (SLA) after talks to merge Lloyds' Scottish Widows subsidiary with SLA's pensions and assurance business broke down late last year, according to reports at the weekend.
In a stock exchange announcement last week, Lloyds said it had given Standard Life Aberdeen a 12-month notice period for the termination of current arrangements, highlighting the Scottish Widows assets were now being run by "a material competitor" following the merger of Standard Life and Aberdeen last August.
However, both The Sunday Times and Sky News cited sources who said at the heart of the row is the breakdown of talks between the Edinburgh-based rivals concerning a £6bn mega-merger of their life insurance arms.
Discussions started last June but broke down in mid-December over a disagreement about the structure of the new business, which would have around £300bn AUM, according to reports.
Standard Life Aberdeen is understood to have proposed a joint venture, run as a standalone company with a shared board.
SLA would have had members on the board of the new company, but the roles of chairman and chief executive would be taken by Scottish Widows' chairman Nick Prettejohn and Antonio Lorenzo, who runs Lloyds' insurance and wealth operations, Sky News reports.
However, as the dominant partner owning roughly 60%, Lloyds demanded full control and insisted the new Standard Widows business become a subsidiary of the bank. As Lloyds would only proceed with talks on that basis, discussions failed late last year.
Following termination of the talks, the papers reported that Lloyds boss Horta-Osorio made the decision to pull the £109bn contract from SLA, although one source told Sky News the decision was attracting attention from City watchdogs.
This week, Horta-Osorio is set to reveal a new three-year strategy for Lloyds, with Scottish Widows' pensions and financial planning services expected to play a key role.
Meanwhile, also in results later this week, Standard Life Aberdeen is expected to announce investors pulled more than £30bn out of Standard Life Aberdeen funds in 2017, including £10.2bn from its Global Absolute Return Strategies (GARS) fund, amid speculation the group could boost its dividend to soften the impact, The Telegraph reports.