Lloyds Comes To Hbos's Rescue

Sydney Morning Herald

Friday September 19, 2008

Paola Totaro London with agencies

BRITAIN'S largest mortgage lender, Halifax Bank of Scotland (HBOS), has agreed to a #12.2 billion ($27 billion) rescue by Lloyds TSB, though institutional shareholders expressed dissatisfaction over the terms of the emergency takeover - the biggest rescue in British history.

The two banks agreed to merge yesterday to create a #28 billion giant in a deal that will value HBOS shares at #2.32, 58 per cent more than Wednesday's closing price. Lloyds will pay for HBOS using its own shares and its management will lead the enlarged group.

The merged entity will control more than a quarter of the British mortgage market.

The deal will require a waiver of competition regulations to allow what has been dubbed as a "super monopoly".

HBOS's chairman, Dennis Stevenson, and chief executive, Andy Hornby, will depart the enlarged business, leaving Lloyds' chief executive, Eric Daniels, as the most powerful figure in British banking.

Despite an expected shareholder backlash, business leaders welcomed the agreement.

In early trading last night, British stocks rebounded following the deal, with the FTSE 100 index rising 50.6, or 1 per cent, to 4963. HBOS shares climbed 26 per cent to #1.849, while Lloyds lost 8 per cent to #2.575.

HBOS suffered an unexpected and dramatic loss of investor confidence on Wednesday and a subsequent tumultuous collapse in its share price. Before the reports of the takeover talks, its shares dived 52 per cent to a low of 88 pence as investors fretted over the state of the global banking sector. Reports of the takeover offered a temporary reprieve, with the stock rising at one point to #2.20.

The British Prime Minister, Gordon Brown - who woke up to yet another newspaper poll disaster and low public confidence ratings ahead of the Labour Party conference this weekend - moved to stymie the collapse.

But analysts warned yesterday that the rescue package may be too little, too late to calm turmoil on financial markets.

Forecasts warned of more bad news for consumers, including rising mortgage costs and unemployment rates. HBOS is likely to need to cut 40,000 staff.

London newspapers reported that the emergency deal was thrashed out amid fears the sudden drop in HBOS's share price might prompt customer panic and a run on deposits.

BankWest reprieve - Page 20

© 2008 Sydney Morning Herald

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