LLOYDS Banking Group saw £30m wiped off its shareholding in Standard Life Aberdeen yesterday after its pensions arm said it would pull £109 billion of funds from the asset manager.

Shares in Standard Life Aberdeen, which was formed via the August 2017 mega-merger of Edinburgh-based Standard Life and Aberdeen Asset Management, fell by as much as nine per cent in early morning trading before closing eight per cent down at £3.58.

As Lloyds owns almost 98 million Standard Life Aberdeen shares this meant its shareholding reduced in value from £380m to £350m. At the time the Aberdeen-Standard Life merger went live Lloyds’ shareholding was worth £418m.

The shares fell after Lloyds-owned Scottish Widows said that the Aberdeen-Standard Life merger had prompted it to look for a new manager for its £109bn book of business.

Aberdeen has managed the funds on Scottish Widows’ behalf since buying out Scottish Widows Investment Partnership, which formerly managed them, in 2014.

However, as Standard Life is also a significant player in the pensions market and competes head to head with Scottish Widows for business, the latter said it would not be appropriate for the current arrangement to continue.

Scottish Widows chief executive Antonio Lorenzo said: “Given the merger of Standard Life and Aberdeen has resulted in our assets being managed by a material competitor, it is now appropriate to review our long-term asset management arrangements to ensure they remain up-to-date and that customers continue to receive good service and investment performance.

“Therefore, we will begin an in-depth assessment of the market to identify a long-term strategic partner, or partners, to manage the current £109bn of assets.”

In a joint statement Standard Life Aberdeen co-chief executives Keith Skeoch and Martin Gilbert said they were disappointed by Scottish Widows’ decision “in the context of the strong performance and good service we have delivered”.

They added that they would be discussing the implications of the decision with both Scottish Widows and Lloyds.

As the terms of the agreement between the businesses mean Scottish Widows must give Standard Life Aberdeen 12 months’ notice before shifting its assets, it is possible that they can come up with a solution that could see Standard Life Aberdeen retain the business.

It is understood that one option being considered by Standard Life Aberdeen is the creation of a standalone fund management arm to service only the Scottish Widows work.

Another option would be for Standard Life Aberdeen to offload its own pensions business, which has assets of around £180bn.

However, as Scottish Widows has already formally served notice to Standard Life Aberdeen any action would not result in the firm automatically retaining the work. Rather, it would have to enter the tender process alongside any other interested parties.

It is likely that it would have to offer more competitive terms if it did decide to retender, with one City analyst noting that Lloyds had been seeking a reduction in the management fees being charged by Standard Life Aberdeen.

As the funds are largely invested in passive mandates they already generate significantly lower fees than the rest of the work Standard Life Aberdeen does.

David McCann, a research analyst at brokerage business Numis, said the fee margin on the Scottish Widows mandate is in the region of 0.14 per cent while the average fee margin across Standard Life Aberdeen’s other work is 0.34 per cent.

As a result, while the loss of the contract would reduce Standard Life Aberdeen’s assets under management by 15 per cent it would only reduce its revenues by five per cent and profits by eight per cent.