Burt admits defeat in scrap over HBOS-Lloyds

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The former Bank of Scotland chief executive wanted shareholders to vote against the deal, kick out management and install him and his erstwhile rival banker, Sir George Mathewson, at the helm. But moves by the Treasury to derail the proposal yesterday seem to have worked.

In an interview today with The Scotsman, Burt concedes his plan is now "effectively improbable".

Although he did not mention the Burt plan specifically, Chancellor Alistair Darling warned banks that they would not automatically get government funding if in distress.

The Treasury is pumping £17 billion into the HBOS-Lloyds TSB combine in return for a 43% stake.

It made it clear yesterday that, if this deal falls apart, a new proposal might get much less generous terms. Public money would only be available to institutions with a "sustainable business model" and "credible" management, the Treasury said pointedly.

Burt claimed he was close to raising £500 million in capital - enough to bridge the gap between the £11.5 billion of public funds going into HBOS and the £12 billion said to be needed to recapitalise the bank.

The Treasury's threat that it would not necessarily bail out the UK's biggest mortgage lender seems to mean that any rival proposal to the Lloyds take-over is doomed to fail.

Burt said: "For those seeking to keep HBOS independent, it [the Treasury] has raised every hurdle it could find to the highest possible level. Although ostensibly leaving the decision to shareholders, the barriers to any alternative proposal are now so great as to make any such proposal effectively improbable."

Jim Spowart, another Scottish banker opposed to the deal, described the Government's heavy-handed approach as "an affront to democracy". But an HBOS spokesman said the Burt proposal lacked "either a business plan or a funding plan".

Burt sold Bank of Scotland to Halifax, creating the business now known as HBOS. He earlier bid for NatWest, but lost out to Royal Bank of Scotland. Mathewson was formerly in charge of RBS, selecting Sir Fred Goodwin to run the bank.

Lloyds TSB investors vote today on whether to go ahead with the HBOS deal. HBOS shares were up 4.2p to 67.2p, while Lloyds fell 1.9p to 129.3p.