Lloyds Banking Group was created in the white heat of the financial crisis in a deal that has been subject to seemingly endless battles and disasters.
The story goes that, in 2008, the Government was panicking about the collapsing banking system so Labour prime minister Gordon Brown banged some heads together and forced Lloyds TSB to buy the doomed HBOS.
When HBOS dragged down the wider Lloyds Group a few weeks later, the latter was forced to go cap in hand for a 42 per cent bailout from the Government.
Investors were furious and claimed the Government had distorted the value of their shares by getting involved. Indeed, the story grew that a helpless Lloyds board had been railroaded by a frenetic Brown to get the deal done.
Ivan Fallon’s book, Black Horse Ride: The Inside Story of Lloyds and the Banking Crisis, does a good job of busting myths that have built up around the deal. Fallon outlines the background, explaining that Lloyds had been chasing HBOS for years but had been concerned about competition rules.
HBOS was already a veritable Russian doll of entities, including Halifax and Bank of Scotland. But buyouts were all the rage during the decade as banks ate other banks. Royal Bank of Scotland bought both NatWest in 2000 and ABN Amro in 2008.
Having avoided much of the racy mortgage lending and international expansion, Lloyds wanted a piece of the pie. HBOS, the raciest in terms of UK commercial and mortgage loans, was its choice for expansion.
Fallon explains how the financial crisis was used as a lever to get the deal done, rather than Brown simply wanting to push it through. He says the Lloyds board wanted it to happen and saw it as a chance to bypass competition law.
The deal was a disaster from the start. Although Brown waived competition rules, Fallon says the protagonists effectively forgot, or at least underestimated, EU regulations.
Lloyds Banking Group was forced to sell 632 branches to meet European monopoly rules. This became another saga as it agreed to sell the branches to Co-op Bank before the latter was found to have a £1.5bn capital hole.
The branches have since been spun off into a separate entity, fulfilling EU law and resurrecting the old TSB brand.
A major factor in the disastrous deal was HBOS’s contrasting culture, including terrible backbooks. It dragged down the solid bank that was Lloyds TSB and, clearly, the Lloyds board had not fully appreciated what it was getting into.
The full horror of HBOS’s collapse is still being pored over. The Treasury select committee has examined the failure and called for ex-chief executives James Crosby and Andy Hornby and ex-chairman Lord Stevenson to be banned from financial services. Crosby gave up his knighthood and part of his pension but Hornby is working as head of a publicly listed gambling firm.
The FCA’s much-delayed report on the collapse has been bogged down in legal difficulties but is expected soon.
This book is another account of the banking crisis and makes a fascinating read, with a fresh perspective on events.
Anyone involved in the mortgage market in the past 15 years will have dealt with Lloyds and HBOS, so it is worth reading how the pair got it so wrong. This is a fast-paced account of a famous merger, a crisis that affected us all and the bank that has since emerged.