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HBOS rescue deal is under threat
Nick Goodway, City Correspondent30 Sep 2008
The £12.2 billion rescue takeover of HBOS was thrown into doubt today as its shares slumped again.
Traders were betting millions of pounds that the Lloyds TSB deal to save Britain's biggest mortgage lender, owner of the Halifax, was at risk of falling apart.
At one point HBOS shares were down by more than 20 per cent. They recovered slightly to be 16p down at 126p. A failure to secure the deal would be a massive blow to the authority of the Prime Minister, who was closely involved in stitching it together last week.
It would also mark a new and even more dangerous phase of the financial crisis as HBOS is one of Britain's biggest banks with assets of £667 billion, dwarfing Bradford & Bingley.
The new doubts about the merger deal that would create a huge "superbank" represented in virtually every high street in the country came as share prices around the world were sent on a rollercoaster ride after the failure of the US Congress to approve a $700 billion bail-out for American banks.
The FTSE-100 Index initially fell 105 points to 4713 in early trading but then staged a remarkable comeback as shellshocked traders and investors paused for breath.
Hopes that a new bail-out deal can be negotiated by Thursday when Congress returns after the Jewish new year break breathed some confidence back into the market.
But Wall Street and City analysts still fear that without a bail-out banks around the world will fail because of their burdens of bad mortgage debt, leading to a block on credit that will plunge the world economy into a deep recession.
The fresh doubts over the HBOS deal cast a shadow in the City. The sharp falls in the share price are a clear signal that speculators on the stock market fear the deal is either dead or will be slashed in value. Lloyds declined to comment on whether it is looking at dropping the terms of the bid and said: "We are pressing ahead with the deal."
But senior banking sources said that the bank was now looking at "repricing the terms of the offer".
Lloyds shares actually rose slightly on hopes that the takeover will be scrapped or made cheaper, climbing 81.2p to 225.75p. That made the offer worth 188p a share or 62p more than the HBOS share price.
Any scrapping or changing of the rescue deal would hit Halifax Bank of Scotland's 2.1 million private shareholders hard. It is also politically charged given the thousands of people the bank employs in Scotland and West Yorkshire. Hundreds are expected to lose their jobs after the merger.
Analysts pointed out that since shortselling of shares in banks was made illegal earlier this month, swings in share price have become even more volatile.
Punters who want to bet against a bank or company now have to sell the shares outright rather than using side bets. When Lloyds launched its offer to takeover the Halifax and Bank of Scotland owner it offered a proportion of its own shares for every HBOS share.
Originally that offer was worth 232p per HBOS share. But as the banking crisis deepened not only have both banks' share prices fallen but the gap between the value of Lloyds' offer and the HBOS share price, known in the stock market as the discount to the offer, has widened.
Originally the discount was less than 15 per cent which reflected investors' measurement of the risk of the deal not being done by Christmas.
Normally in all-share takeover bids the target's share price tracks the attacker's fairly closer.
But today the discount between the HBOS share price and the value of the Lloyds offer was as great as 40 per cent - a level never normally seen in a takeover bid.
That effectively meant that stock market professionals were betting no more than 50/50 on the deal going ahead.
Lloyds TSB, like all bidders, has a clause in its original takeover announcement allowing it to pull out or change the terms of its bid in the event of a "material change" in circumstances.
Anyone in financial markets could easily argue that has happened in the last couple of days.
Reader views (19)
In response to "Claire"'s question : it means that the dross of organised political gangs have passed through filters that rejected any who might prioritise societal well-being above that of the pack (and those to which it has sold its services in consideration for the power that goes with high office). Therefore changing the office-holder merely creates an illusion of more significant change.
- Jack, London, 01/10/2008 09:42
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It is time Gordon Brown came out and did something about the melt down in the Financial Market. All I hear his words rather than any concrete action. He could have done something and taken a lead by taking a stake in HBos to calm the markets and stop the run on the the HBOS shares. It is no point of going to America to support the bill when his goverment could have followed irelands lead by guaranteing the deposits or creating a fund so that banks could mortgage their sub prime loans to the government at a price that the taxpayer dont lose.
- John, London, 30/09/2008 21:31
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this worries the hell out of me.. first we have a deal where the govt rode roughshod over the competition commission (excusable, just, in my opinion) but now we learn that our best beloved leader cannot even tie a deal properly and that it's all going to fall apart. god only knows what will happen to the FTSE tomorrow morning if this fails! It reminds me of an eager and defiant salesman telling his boss a deal has gone through, gains the plaudits and yet, with a depressing inevitability the manager finds the deal actually was tied with wet toilet paper. this shower cannot do anything right it seems, and when it comes to negotiating with the private sector they get completely torn apart - just look at EDS and DWP computer contracts.. if this was private sector they'd all have been fired for incompetence.
- Tom Bates, Hampton Wick, 30/09/2008 17:48
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Toxic assets, Sub-prime, 125% loans, self-assessed loans, all these = , at best, only partial security.
The troubled Banks valued all these at their full face value in their unqualified AUDITED ACCOUNTS.
I believe that if you try that in a business you manage, you and your accountants will have defrauded the shareholder and the creditors.
They knew what they were doing when they trusted you; tough luck.
You will be locked up for fraud.
The Insolvency Act is applicable. The Qualified Insolvency vultures, hyenas, jackals and marabou storks will happily sort it.
If the politicians use the Nation's funds to bail them out, they are conniving.
- Ernestgj, Arundel UK, 30/09/2008 17:38
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The markets always look to pick off the weakest animal in the pack - then, if they get what they want, they move on to the next potential kill. (1) Northern Rock (2) HBOS (3) Bradford and Bingley (4) HBOS/Lloyds TSB merger (5) HBOS, if merger spoiled (6) RBoS.
- Anthony, Richmond, Surrey (UK), 30/09/2008 16:54
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It never ceases to astound me, that people seem to think that cutting interest rates is the remedy to all financial ills and that this will somehow rescue the economy. Aside from allowing inflation to run riot, lower interest rates would also weaken the pound, impacting further on import costs (and again, inflation). And has nobody realised that it was low interest rates and the lending frenzy upon which they were based that has led us into this inevitable chaos? It's no use sticking another plaster onto the wound - we need to let the poison out and for it to heal over time. That means recession and possibly depression but if we hadn't been so greedy, banks so reckless and the FSA so toothless for the past 10 years, we wouldn't be in this mess. It's boom & bust economics. We've had the boom, now we're living the bust. House prices need to fall 40-50% to be sustainable and we're already seeing that correction underway. Then people can buy homes - not with large, 95-100% loans at low interest rates but with 15-20% deposits and affordable mortgages at sensible interest rates that fluctuate according to the economy, diminishing exposure.
And if you still think low interest rates will do the trick, ask a Japanese person about their 0% rates and what it did for them...
- Cp, London, UK, 30/09/2008 15:38
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We should remember that it was when we had a tory gevernment when all the long established building societies were encouraged to become banks with shareholders.
People opened accounts just for the purpose of getting free shares when the societies left behind their roots as organisations developed to fund house purchases by its members.
Now just like people moan about increasing fuel prices like gas and electricity after they were quite happy to "Ask Sid" and pay for shares in something they already owned they now complain about falling house prices having been happy to buy and sell and pocket the difference.
Well as they say what goes up can come down it called free enterprise which is not a one-way street to paradise.
Perhaps its time to re-invent the old building society model and for Northern Rock and HBOS to be used for a new version of the old post office savings bank which would be owned by the people. Who knows the idea might catch on one day?
- Melvyn Windebank, Canvey Island, Essex, 30/09/2008 15:07
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This government will "lean" on Lloyds to make sure this goes through. Having bragged about how he brokered a deal and been decisive Brown cannot let this one slip away. Lloyds have him over a barrel and will get very much improved terms for their takeover. This one has much further to go before it's finished.
- Michael, London, 30/09/2008 14:58
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"Betting" it says it all...I do not go into a Casino and gamble my wages each month so why let these idiots gamble all of our futures? It's like trip to the bookies but this time with far more is at risk.
- Fly, london, 30/09/2008 14:33
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Strange how the interest rates run the economy. When they are high we go into recession and when they are low we are bouyant. The answer is to keep them low, then recession would be less likely to occur. Perhaps the government should take control of these rates. While they are about taking control of things, perhaps they could take control of Council Taxes and be good enough to reduce them, or at least ensure that every adult aged 18 and over pays towards them instead of the hard hit home owners, after all, the so called services offered by the councils are for everyone, not just the homeowners.
- Elaine Adams, Wales, 30/09/2008 13:53
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Gordon Brown suddenly finds himself in his element. Afterall, in the land of recession, the depressed man is king. As the markets dive, his opinion ratings climb. And now he is the only banker in town. He will nationalise "whatever it takes". He is loving this. He has worked for over a decade to remake the UK in his own image.
- Blackstone Coke, London, 30/09/2008 13:36
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But Jack, what does your comment actually mean?
- Claire, London, 30/09/2008 13:10
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Why are they just not letting the professionals take over. The Nu Labor bunch from Crash Brown has really left this country in a mess!!
- Georgie, Islington, London, 30/09/2008 12:42
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slash interest rates now---follow the irish government lead by guaranteeing all deposits----but no this government procrastinates whilst the economy burns---it needs to be proactive not reactive and then we may get some semblance of calm
- Stephen Cole, london uk, 30/09/2008 12:33
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The government should stop allowing Northern Rock to take deposits. As investors seek a safe haven, it's completely distorting the market by depriving other banks of much needed capital.
- Jl, London, 30/09/2008 12:32
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In response to "S.Port" - negative, negative, negative - a change of office holder would no more than create a counter-productive illusion of change. The present office-holder is duty bound to prioritise societal well-being above the well-being of the organised political gang and its cronies on the cronycapitalist merry-go-round
- Jack, London, 30/09/2008 11:54
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Let’s all just be really grateful that we have a popular, elected, decisive Prime Minister who has shown great leadership and judgement every time he has been called upon and never just run for the hills or spent more time blaming everyone else than fixing things…oh, err….
- St, London, 30/09/2008 11:45
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Thank goodness there is a small handful of legislators in 'Murka willing to draw a line, unlike the establishment of the its satellite second class State. The Anglo Saxon economy is drowning in cronycapitalism
- Jack, London, 30/09/2008 11:29
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In order to bring order back to the economic world only a change of leader at the helm will give confidence to the markets. With Bush out and presumably Obama in, the world has a chance and in the UK with Mr Stability Brown out and whoever in we have an even greater chance.
- Mr S.Port, London, 30/09/2008 10:33
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