Morning:
9°c
WHEN Lloyds TSB announced it was taking over HBOS to create a superbank a few weeks ago, there were high-fives all round. Eric Daniels, Lloyds' American chief executive, was ecstatic. Roll forward to this week and he is reduced to putting a brave face on a deal that no longer looks anything as attractive.
It's clear that HBOS is far more of a dog's dinner of a bank than was previously realised it lent hugely to both the UK residential and commercial property markets and is exposed to some of the buccaneering and now vulnerable entrepreneurs to have emerged in the past few years.
Lloyds, which prided itself on being the most conservative of banks, preferring to attract investors with a steady high dividend rather than by making acquisitions, now finds itself out on an unfamiliar limb.
The price it is paying has been renegotiated downwards but, even so, the suspicion has to be that it would prefer to walk away from the merger and could still do so.
Under the recapitalisation plan thrashed out with the Government, Lloyds finds itself sharing HBOS with the state. If all goes ahead, the Government will be the biggest shareholder in the new Lloyds-HBOS, with 43.5 per cent. Lloyds shareholders would account for 36.5 per cent and HBOS investors 20 per cent.
Lloyds has had to sign up to the rescue, raising £5.5billion, with most of that money coming from the taxpayer. And as part of the price for the Government's cash injection Lloyds, along with the others, has had to forego its dividend to shareholders.
At the same time, continuing deteriorating trading conditions are making HBOS's condition worse, not better. There is talk in the City of further write-downs.
At Lloyds, by contrast, the bank is insistent its own lending book remains robust. That, plus all the trauma that inevitably lies ahead in terms of cost-savings and job losses must make Mr Daniels and his chairman Sir Victor Blank wonder if they are doing the right thing.
The answer is that in the short-term, they are probably not.
Months of grief lie ahead a process not helped by having the Government on board as the major shareholders. The Scottish lobby will kick up a storm if the London government is seen to be taking an axe to Edinburgh, the base of many HBOS employees. The new bosses' room for manoeuvre is nowhere near as free as it was.
But Lloyds is not in the same boat as the others. It is being treated more benignly by the Treasury, partly in recognition of the bank pushing through with the merger. Its directors can still pay themselves cash bonuses if they wish and the approach to them is more consultative and less dictatorial.
Long term, if the Government stays true to its word and only sees itself as a temporary shareholder, then Mr Daniels and his colleagues may be in the clear. They will have taken over one of the country's biggest banks in a purchase that in normal circumstances they could never have got through the competition authorities and that may be a price worth paying. However, given the problems they now face, that day looks a long way off.
Reader views (4)
Eric Daniels and Victor Blank, a pair of shysters. This deal stinks, it is a lousy way to reward loyal shareholders.
- Vini, London,England.
I have had my dividends as shares with Lloyds for the last 18years.What a con,another Chairman to become even richer at the exspense of the shareholders.
- R.Hart, Sutton Coldfield UK
In the middle of the credit crunch when the banks were allegedly not lending, my disabled adult son who cannot read, write or count due to brain damage he suffered during surgery as a child, went into the Lloyds branch near where he works to ask what his balance was.
He has banked at Lloyds since 1995. He left the branch shortly afterwards with a £2000 personal loan payable over 5 years at 24% interest. They also sold him a payment protection plan which over the five years would have doubled the cost of the loan, not including the interest. The terms and conditions of the policy make it abundantly clear that he would never have been able to make a claim because he is not in full time employment
The bank will not back down although they have cancelled the policy, because they say there was a cooling off period. More than likely they were worried about the consequences of misselling. They will not however cancel the loan because they claim he signed it in the bank so there is no cooling off period. Apparently the fact that he cannot read, write or count is irrelevant.
My son did not ask for the loan, he doesn't know what a loan is and he certainly doesn't know what interest is. The big question is why was he given a loan he did not ask for and cannot understand. Perhaps because he receives working tax credits the bank thought he was an easy target for the greedy bank
- Mary-Ellen Westwood, London UK
Eric Daniels and Victor Blank..What have they done to a once respected and honest bank..that paid a reliable dividend and was very conservative and careful on behalf of the trusting investors.?
Started at drinks episode according to The Daily Mail
- Alphonso Rossario, New Orleans USA
