That is a comparative bargain compared with its £19bn bid for the UK’s second largest lender Abbey National in 1991 when the move was blocked by the Competition Commission. Timing, as they say is everything.
The events leading up to the acquisition, announced on September 17, are documented in The Month at a Glance (pages 12-13 in this issue) although how long the parties have been talking to each other behind closed doors is unclear.
Initial reports suggested that the deal had been brokered by Prime Minister Gordon Brown on September 15 when he met Lloyds TSB chairman Sir Victor Blank at a social function in London. However, subsequent coverage shows that HBOS and Lloyds TSB began talks at a senior level earlier in the year but these were put on hold because of the competition issue.
On the available evidence, it looks as if the PM’s contribution to the deal was to assure Sir Victor that a monopoly of the market wouldn’t be a problem anymore – an attitude that can be interpreted as either a pragmatic response to a market in meltdown or a knee-jerk reaction to the run on HBOS shares.
Critics of the deal believe Brown could not face a repeat of the Northern Rock scenario which so discredited chancellor Alistair Darling, the Bank of England and the Financial Services Authority.
What is certain is that on September 16 Darling called an emergency meeting of the Treasury, the BoE and the FSA when it was agreed to bypass the competition issue and do something about short selling, which they believed had been HBOS’ undoing.
The timing of announcements has puzzled pundits.
First, BoE governor Mervyn King’s U-turn on extending the Special Liquidity Scheme was made on September 16. The Bank said this was in response to “disorderly market conditions” but as pointed out by Chris Giles, economics editor of the Financial Times, the extension would help facilitate a merger between Lloyds TSB and HBOS because “it would give more time for a combined company to assess its funding needs and access relatively cheap and stable funding”.
Then, while the deal was confirmed on Wednesday September 17 the government waited until Thursday to say the FSA needed to do more about short sellers and subsequently confirmed a ban on short selling in the financial sector until January 16 2009.
As Scotland’s first minister Alex Salmond said on BBC Radio Scotland: “These are welcome moves but it’s a bit late for HBOS.”
His view had been informed by calm returning to the equities market which had also been buoyed by a massive injection of funds by central banks and news of US Treasury secretary Henry Paulson’s $700bn masterplan to resolve the global banking crisis once and for all.
But by September 21 FSA boss Hector Sants was admitting that market panic, not short-selling, had been the problem, a view substantiated by Morgan Stanley which confirmed that only 2.9% of HBOS shares had been ‘on loan’ on September 15.
On the competition issue, whereas last year the Building Societies Association was concerned about the implications of nationalising Northern Rock, with the demise of HBOS, BSA director-general Adrian Coles told Lending Strategy that when faced with a market meltdown “it is important to put financial stability first”.
Looking ahead, he was concerned that “a new Lloyds could underprice the market to gain market share”.
The group will have a mortgage market share of some 30% with assets of £330bn as well as personal savings of £258bn, representing 35% of the market.
Brands and the survival game
The new group – for the Lloyds TSB/HBOS entity is so new that it has yet to be given a name – will have an interesting branding issue to sort out and as with branch rationalisation, the imperative will be to drive down costs.
And as with the branches, where an estimated 1,000 staff will go, opportunity knocks. For example, on the life and pensions side the acquisition will bring together HBOS’ Clerical Medical brand with Lloyds’ Scottish Widows. Then, on the mortgages front, Lloyds TSB’s Cheltenham & Gloucester will be joined by Halifax, BM Solutions, Intelligent Finance and Bank of Scotland, while on the retail banking front there will be three major brands to rationalise – Lloyds TSB, Halifax, and Bank of Scotland.
Each brand is a household name and however the new bank structures itself it will be the biggest UK provider of mortgages, savings, personal loans, credit cards and household insurance. Thus if it succeeds there is reason for its competitors to fear it but if it fails, that will be another story.