Tag Archives: HBOS

Almost £215bn of Lloyds £260bn toxic dump on state can be tracked to HBOS

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The first of a double whammy on the Scottish taxpayer is our share of the debt burden of £260 billion of toxic ‘assets’ (as expensive mistakes are known in the upside-down world that is banking) that Lloyds have just dumped on the state for ‘insurance’.

The second hit is on pride rather than pocket. It is the traceability of around 5/6ths of this debt to HBOS – or what we still think of as the Bank of Scotland. This amounts to around£215 billion.

And in doing this neat transfer, Lloyds have arranged a valuable bonus not given to RBS in its own dump of £365 billion on the ‘state asset protection scheme’. In exchange for its generosity in this ‘asset’ insurance, Lloyds has negotiated a tax concession likely to cost the exchequer at least £7 billion in lost corporation tax.

The deal is that Lloyds ‘pays’ (and yes, this is no more a payment than the ‘assets’ are assets) the Government £15.6 billion as its insurance premium to protect the £260 billion of assets now lodged in the ‘scheme’ (now there’s an accurate word).

Lloyd’s will then be responsible for the first £25 billion of any – inevitable – losses but will be allowed to offset these losses against taxable income, a revenue loss to the exchequer of £7 billion.

Lloyds will also bear 10% of losses over £25 billion, with the state carrying the other 90%.

And the ‘paynent’ that isn’t a payment? Well, it’s payment in kind. Lloyds is giving the Government new ‘B’ shares in the bank with the right to convert these later into ordinary shares.

Quite how £15.6 billion can be translated to any particualr number of Lloyds ‘B’ shares in today’s gravity-affected market in banking shares is another matter.

Extent of real HBOS debt beginning to emerge – For Argyll covered this months ago

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The UK financial world reeled under shock waves yesterday (13th February)  as accountants pronounced that the situation demonstrated by the HBOS  books was considerably more serious than they had previously thought. HBOS revised its loss forecast for the year upwards from around £8billion to almost £11billion. Lloyds TSB shares took a 32.5% dive after the news.

For Argyll has twice warned about HBOS’s significant exposure to Alternative A mortgages (Alt As) in the USA – mortgages which have proved more toxic than the better known Sub-Prime variety.

It is unlikely that today’s announcement is the end of this story. The eventual outcome is increasignly likely to mean the new Lloyds Banking Group joining Northern Rock as a whoilly nationalised bank. Chancellor Alistair Darling has refused to rule out this option.

HBOS Pensions Trustees withdraw objection to merger as Lloyds pays huge US fine to end investigation into admitted ‘criminal conduct’

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The Trustees of the HBOS employees Final Salary Pension Scheme (FSPS) have withdrawn their legal objection to the proposed merger with Lloyds TSB. This comes after representations from Lloyds on the dangers of delay – and what looks like little more than verbal reassurances on the HBOS pension scheme.

Fast on the heels of this action, comes the news that Lloyds TSB has agreed to pay a whopping fine of $350 to US authorities. The fine has been imposed for financial transfers which violated US sanctions.

The US Justice Department says that Lloyds TSB have acknowledged ‘criminal conduct’ and agreed to pay thi fine in return for an end to its investigation.

Justice Department prosecutors said that Lloyds TSB had faked records to enable clients of the bank in Iran, Libya and Sudan to do business with US institutions. For 12 years, from 1995-2007, Lloyds is said to have removed customer names, bank names and addresses from documents so that wire transfers of hundreds of millions of dollars could pass undetected through sanction filters at banks in the USA.

Lloyds TSB said that it had cooperated fully with the probe – so closely, by the look of it, that the writing on the wall led to the payment of the fine to stop further investigations.

Lloyds say: ‘We are committed to running our business with the highest levels of integrity and regulatory compliance across all of our operations, and have undertaken a range of significant steps to further enhance our compliance programmes’.

This is a great example of ‘spin’ working to turn the world upside down.

Surely a 12 year span of non-compliance, deliberately effected in the interests of clients in sanctioned countries, could not have existed below the radar of a company so ‘committed to running our business with the highest levels of integrity and regulatory compliance….’

One interesting question remains – whose money paid the fine? Was it ours?

Lloyds refuses to guarantee HBOS pensions

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The latest difficulty in the planned takeover of Halifax Bank of Scotland (HBOS) by Lloyds TSB has come in Lloyds’ rejection of a propoal by the Trustees of the HBOS Pension Fund to reassure its stakeholders.

The Trustees have been trying for some time to come to the table with Lloyds on this issue and have been unsuccessful. In the absence of meaningful discussion, they then submitted a proposal to Lloyds on a route to agreement. This was rejected by Lloyds without any alternative of their own being advanced.

The Trustees therefore have no idea what measures LLoyds are planning to take on the matter after the merger. So they are going to the Court of Session in Edinburgh to ask it to put a halt on the ‘merger’ by withholding its approval – which it was due to give on 12th January – until the matter is sartisfactorily resolved.

Writing yesterday (2nd January 2009 )to the members of their Final Salary Pension Scheme (FSPS) they say in conclusion: ‘We do not think that the FSPS can or should rely simply on broad statements of intent unsupported by a legally binding commitment’.

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MAG’s last stand for HBOS fails at Competition Appeal Tribunal

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The six-member Merger Action Group brought a last-minute legal challenge to the UK Government-brokered Lloyds TSB takeover of Halifax Bank of Scotland (HBOS).

The Competition Appeal Tribunal was asked to decide if the UK Government had been right to bypass competition concerns in allowing HBOS to be rescued by a Lloyds takeover. The resulting superbank will inevitably leave some villages and small towns, which once had a choice between Lloyds TSB branch and an HBOS branch will now have only one local banking service.

The challenge was heard this week by the tribunal, in London under Scots law – and rejected today.

The last ritual in what was pretty well fore-ordained when the Government stepped in to broker the Lloyds takeover of the bank, will be played out on Friday 12th December. HBOS shareholders will vote on the takeover deal on that day and there is only one way the vote will go. The huge overall stake of the institutional shareholders will certainly be voted in favour.

Before national mourning breaks out, it is worth remembering that the contents of the HBOS books remains largely unknown to the public. As For Argyll reported very early in the bank’s collapse, it is said to have a worryingly high exposure to what has proved the most toxic of all mortgage products – not sub-prime but the little spoken-of Alternative A – or Alt A mortgages.

Read For Argyll’s earlier report on this matter.

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Mandelson’s lawyers said to have threatened MAG group to halt tomorrow’s legal challenge to HBOS’ Lloyds takeover

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The words ‘leopard’ and ‘spots’ swirl into mind. Lawyers acting for the Business Secretary Peter Mandelson have sent a letter to the six members of the Merger Action Group (MAG) in a attempt to get them to halt their legal challenge to the takeover of HBOS by Lloyds. The case is to be heard tomorrow (8th December 2008) in London at the Competition Appeal Tribunal – under Scots law, as For Argyll reported in an earlier item (below).

Two of the six, MSPs Alex Neil and Margo MacDonald said that the letter threatened the MAG members with legal costs unless they withdrew their case.

A spokesperson for the Department of Business admitted that such a letter had indeed been sent, describing it as simply suggesting that the case be withdrawn because of what she called ‘the weight of evidence against it’.

She is also quoted by the BBC as saying: ‘The letter was intended to give the appellants a chance to save costs before pursuing their legal challenge further’.

And together now: ‘Ahhhhhh – we never knew he cared.’

However, the wording of the letter said that the Business Secretary ‘would pursue costs against each of the identified members’. Somehow this doesn’t come over as driven by caring, does it?

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Lloyds announces both Bank of Scotland and Halifax names to be saved as Which? supports challenge under Scots law

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Announcements from Lloyds TSB indicate that the names of both Bank of Scotland and Halifax will be retained should the proposed takeover of HBOS go ahead.

The new superbank will legally be Lloyds Banking Group but it is accepted that this is not a name with any resonance on the High street. So the intention seems to be to use the Bank of Scotland brand in Scotland and the Halifax brand in Yorkshire. Both bank brands are likely to operate essentially in the retail banking sector.

The historic headquarters of the Bank of Scotland at The Mound in Edinburgh is to be retained as the HQ for Scottish operations.

These intentions have been made known in advance of a final legal challenge to the takeover brokered by the UK Government and agreed by the boards of both banks.

The challenge is being mounted by the Merger Action Group (MAG), whose spokesman is Edinburgh architect, Malcolm Fraser. Mr Fraser was responsible for the repair and renewal of the headquarters building at The Mound.

MAG asked the Competition Appeal Tribunal to sit in Edinburgh as HBOS is a Scottish group and both banks are registered in Scotland. The Tribunal accepted the core of the case in that the challenge is to go ahead on Monday 8th December under Scots law while being heard in London. Any appeal would be held in Edinburgh.

The issue centres on the UK Government’s overruling of competition concerns raised by the Office of Fair Trading when, on 31st October 2008, it gave the go ahead to the hastily arranged Lloyds takeover of HBOS.

Malcolm Fraser says: ‘As a group, we are extremely concerned that due legal process has been ignored. In Scotland, particularly, there is a widespread and growing unease at what has taken place. Given that taxpayers are ultimately funding the takeover, we are simply asking that the law is properly applied and that our long-term interests are protected’.

MAG has also sought the support of unions, industry bodies and consumer groups and last night, 5th December 2008, the Consumers’ Association, through its pubication, Which?, came out in support of the challenge. The judgment is expected on Tuesday 9th December.

The entire process was fast-tracked to facilitate the vote by HBOS shareholders on 12th December – an acceleration based on the assumption by the UK Government that the MAG chalemge will fail.

Three factors affect the HBOS shareholders’ decision, even before the Tribunal hearing of the MAG’s case begins.

  • The absolute power of the few institutional investors. Their holdings are so large that no concerted opposition by the mass of small shareholders can defeat their will. In these difficult economic times – regardless of growing concern over the competence of the decisions taken by the UK Government – they will go along with what the Government wants. This has already been seen in the massive ‘yes’ vote by Lloyds TSB shareholders in accepting the proposed deal.
  • Decisions on branch closures will not be taken until after 19th January 2009, the date by which Lloyds expects the deal to be completed.
  • Furthermore – a crucial matter for depositors – it has yet to be decided whether to reduce the number of Banking Licences the new Lloyds Banking Group will hold under the Financial Services Authority (FSA). As For Argyll reported earlier on the role of Bank Licences, savers’ deposits are only protected by the Financial Services Compensation Scheme (FSCS) for the first £50,000 of any and all deposits with each single holder of an FSA licence. At the moment, a saver with one account at Lloyds and one at HBOS would have guarantee protection for both accounts, as each has its own licence. If these are reduced to a single licence, then only one account would be guaranteed.

The last two of these factors mean that HBOS investors do not know – and will not know when they vote – what final situation they are voting in.

On the other hand, the big institutional shareholders don’t care. It does not matter to them if there are significant job losses and branch closures in Scotland, Yorkshire or both; or if savers’ deposits left with the group are protected to a higher or lower degree than before. Their responsibilities are – rightly – only to their investors and they will ‘hold on to nurse, for fear of something worse’.

Given the hard reality that the power of the institutional shareholders and given that the HBOS books have not been made available to the scrutiny of alternative bidders, it is unlikely that there will be any other outcome than the procedure of the takeover, rightly or wrongly.

The problem is that the opacity of the Government’s obstructive management of the affair has given it a political cast rather than a financial one. This does not bequeath a positive launch for the Lloyds Banking Group.

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Burt and Mathewson walk away from HBOS – Updated 21st November

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Following the statement made by Chancellor Alistair Darling before the Lloyds TSB shareholders voted yesterday to accept the planned takeover of HBOS, Sir Peter Burt and Sir George Mathewson have abandoned their attempt to manage HBOS into independence.

Mr Darling, in a departure from earlier reassurances, announced yesterday – ahead of the Lloyds vote, that if a bank came back to the negotiating table after agreements made at the bail-out, they could not count on receiving the same recapitalisation or share price as previously agreed.

This will certainly, as intended, have stiffened the resolve of the big institutional shareholders to back the Government arranged takeover. This block swung the acceptance vote to a massive 96%.

With many of the institutional shareholders in Lloyds also shareholders in HBOS, the two senior Scottish financiers obviously now anticipate the same outcome at the HBOS shareholder vote in December.

They have shut down the website they had so recently launched, aimed at recruiting HBOS shareholder support for an EGM to consider their proposals. The site currently simply says:

‘In the light of the Chancellor of the Exchequer’s statement on 18th November 2008, we will be making a statement shortly.

‘To those people who have sent in their requisition forms, we thank you for your support’.

For Argyll would anticipate a statement in time for the main news either at 6.00pm or certainly for the 10.00pm.

This effectively means that The Fat Lady has finally sung. The one certain outcome is that the last hope of saving management functions in Scotland and saving branches and jobs across the country, including in Argyll.

For Argyll will update this news item with the financiers’ statement when it comes.

UPDATE Friday 21st November: The statement from Sir Peter Burt and Sir George Mathewson has just been released to lunchtime news services. The Independent HBOS website – which unfortunately was slow to arrive, poorly designed and poorly managed from the outset – still carries the familiar screen promising a statement.

The men say simply that that they have ‘reluctantly decided to discontinue their campaign. They say that they took the decision after the government made it ‘crystal clear”‘ it did not want HBOS to stay independent.

They are also critical of the ‘apparent apathy’ of the current HBOS Board, which led the bank to its collapse. They ask: ‘Why hadn’t the board firmly established… both the actual amount of capital required by the FSA and the terms on which the government were prepared to offer that capital?’

In a final sting, the congratulate Lloyds TSB on what they say may well come to be seen as the ‘sale of the century’.

Postscript: The burt-mathewson-hbos-statement appeared on the Independent HBOS website at 2.20pm.

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