Tag Archives: Lloyds

New bank to be called Lloyds Banking Group – now to raise £17bn

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The name for the new giant bank formed if the merger of Lloyds TSB and HBOS goes ahead is to be Lloyds Banking Group. Scotland will mourn the loss even of the name but in the end it is only a name and the reality went some time ago in what has proved to be an unfortunate merger with Halifax.

The banks have also announced that each is to raise money in advance of the merger. HBOS wants £8.5bn from investors and Lloyds wants to raise £4.5. The UK Government will itself buy £4bn worth of preference shares spread across the two banks and will also buy up any shares remaining unsold. The total capital to be raised is therefore £17bn.

There is something of a dodge going down here – a way of letting Gordon Brown off the hook of being unable to stop the banks dong what they like. whatever the conditons of bail-out they signed up to.

The Government is said to have told both banks that they will not be held to account too hard over needing to take capital from taxpayers. In fact, the BBC reports that the Treasury has ‘indicated its encouragement’ for Lloyds TSB to buy back all of the £4bn of preference shares being bought by taxpayers as early as 2009.

This would mean that Lloyds would be able to start paying dividends to its shareholders next year rather than in five years time as envisaged in rescue deal. And this is exactly what Lloyds said they were going to do anyway, regardless of the condition Gordon Brown said he had imposed on the bail-out: paying back the state-owned preference shares first. This is simply a face-saver for Brown at the taxpayers expense.

Lloyds say that the merger will save them £1.5bn a year. Job losses are a major concern in Scotland as in Halifax – and across Argyll, whose economy could hardly be said to be jumping. The Accord and Unite Union s feel that it would be possible to manage the change without resort to redundancies. They take this from the given figure of 16% reduction in costs up to 2011, a timespan allowing a more organic approach to staff downsizing.

The expected losses and write-downs have been emerging. Lloyds’ third quarter profits have been hit by a £270 million write-down on assets hit by world-wide credit problems affecting its wholesale and international division. The first three quarters of this year sees HBOS write-downs and losses on bad debts standing at £5.2bn. This figure is up £2.7bn – by almost double – since the end of June and is unlikely to be the end of this particular story.

While an alternative offer for the bank may yet emerge it is clear that the Government is committed to the Lloyds TSB takeover which is its preferred option. Should a new offer be made and succeed, it will clearly be important that it is based on arrangements which see new management taking the company forward.

Anger as RBS plan to pay staff bonuses regardless – Cable says banks are making monkeys out of the government

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The Royal Bank of Scotland (RBS) in which, after a £20bn bail-out by Gordon Brown with Taxpayers money, the UK Governemnt is now the sigificant majority shareholder, is setting aside £1.79bn to pay discretionary bonuses to specific staff for the first six months of this year (2008).

What is causing even greater outrage is that these bonuses are to go to staff in the discredited Investment Banking Division – the one that caused a £5.9bn write-down, wiping out RBS’ profits for the same six-month period.

RBS had hoped that not giving Boardroom Directors a bonus this year would be a sleight-of-hand tactic, distracting attention from their real intent. Investment bankers below boardroom level ‘who continue to generate profits’ will still receive a pay bonus. Sorry. Was that really ‘continue to generate profits’? Alice in Wonderland doesn’t come close.

Vince Cable, Liberal Democrat Treasury spokesman has condemned the action. He got smartly to the heart of the matter, saying: ‘The government said they would attach strict conditions on bonuses and it is very clear they are doing nothing of the kind. The banks are just making complete monkeys of them’.

An RBS source told The Daily Telegraph that the bonuses are likely to continue after the taxpayer-funded bail out. He said: ‘If the government does end up becoming a shareholder, RBS is still a listed entity. It remains the board’s responsibility to ensure it is run commercially’.

The same source told The Telegraph: ‘You cannot just not pay them bonuses, they will just go elsewhere’. This begs two questions. Why would you want staff whose misjudgments had brought the bank to its knees? And where else, just now, would they go? Their CVs are hardly sparkling.

The Guardian reports that, despite the continuing financial turmoil and widespread criticism of the bonus culture in the City, the bank is understood to believe the payments are defensible. As Mandy Rice-Davies famously said during the Profumo trial, ‘They would, wouldn’t they’?

This blatant disregarding of the ‘conditions’ Gordon Brown set down at the time of the bail out is another indication of how little authority he actually has over the financial system; how far he is unclear about what he is doing; and how little value can be given to his reassurances to the public.

When there was widespread anger at the amount of money being poured into irresponsible banks who had brought about their own – and almost Britain’s – collapse, Gordon Brown assured the taypayer that there were stringent conditions attached to the bail-out. He said:

  • there would be a curb on Bank executive’s pay and perks
  • the taxpayer’s preference stake in full or part-nationalised banks would be paid before shareholders were paid their dividends
  • banks would be required to maintain their lending to small businesses and households at the same rates as in 2007

Within no time at all, Lloyd’s had said that it had no intention of cutting back on executive pay. What was the Government’s response – as we reported at the time? There could be some flexibility. One skittle down on the first bowl.

Next, Lloyd’s also announced that they would be paying shareholder dividends very much sooner than the period signed up to at the bail-out. Governemnt response? None. Another skittle gone.

Then the national media spent a week focusing on the seize up of lending to small businesses and householders. Not only was the rate of lending very different from that of 2007 but the rates for what lending was offered rose steeply. This was a big condition of the bailout It was designed to protect the economy’s foundation of small businesses from sharp decline. It was also designed to shelter the individual household from the worst of the credit crunch, facing potential negative equity and repossession

As yet there has been no action by the Government to free up this crucial area of credit. Game over.

This sits badly against the defiance of the RBS in paying £1.79bn in bonuses for no more than the first six months of this year and for generating a £5.9bn write-down wiping out the banks profits for the period.

The Government, on the evidence, is all talk and no action, impotent in the face of the banks’ open determination to carry on as before.

Set this beside the sheer volume pf panic borrowing to which the Government has committed the UK and buckle down for a long recession and a slow road to recovery. The debt burden is now seriously heavy and cannot but slow progress, when it comes, to a long haul uphill.

Expect bad news from Scottish banks next week – and its starting now

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Lloyds TSB have just announced that nine of the top eleven jobs which will operate if the proposed merger takes place will go to managers from within its own organisation with only two going to former HBOS people.

Eric Daniels, CEO of Lloyds and already named as CEO of the giant bank that would emerge from the takeover says: ‘We had to make a judgment around who would be able to be most successful in leading this much larger, much more complex organisation. The process was absolutely impartial’.

The two HBOS executives to be appointed to designate senior roles are Harry Baines, slated for General Counsel and Company Secretary of the new bank; and Jo Dawson, who is to be Director of the new Wealth and International division.

In another serious blow to Scottish hopes, there will be only one member of the senior management hierarchy based in Edinburgh. He is Archie Kane, to be Group Executive Director of Insurance. He currently runs Lloyds TSB’s Scottish Widows business and is already based in the city.

Sir Victor Blank, chair of Lloyds TSB has already been announced as the designate Chair of the new bank.

National pride apart, it’s hard to argue with this coming landscape in the context of HBOS’s performance, fuller details of which will emerge next week – as we report below and have, uniquely in Scotland, covered before.

Next week will see trading updates from HBOS, Royal Bank of Scotland and Lloyds TSB . There will also be more information on the capital Lloyds and RBS are raising from UK taxpayers. And there’ll be more on the takeover of HBOS by Lloyds. as shareholders in both companies start to play an active part,moving towards the point where they approve or reject the proposed takeover.

Expect the results from both HBOS and Royal Bank to be bad. There will be wider public focus on a matter on which to date, For Argyll has been the only news service in any medium in Scotland to comment. This is what we called ‘the back story’ on the HBOS collapse, in an earlier report.

This is about a little talked-of but significantly more toxic lending than sub-prime mortgages and one to which HBOS has a massive exposure. Read our earlier article. This situation will have to emerge next week so expect some shocks.

Holyrood votes to keep HBOS independent

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HBOS inherited the affections of Scotland for its Bank when, after the merger with the Halifax – effectively the end of genuine independence – the new body kept its headquarters at The Mound in Edinburgh.

The Scottish Parliament at Holyrood today voted for a motion proposing that HBOS should remain an independent bank rather than go ahead with its proposed takeover by Lloyds TSB.

The best crack of the session came from Patrick Harvie of the Green Party who said that debating the HBOS takeover without addressing the fundamental causes of economic trouble was pointless. He described the effort as: ‘little more than a group hug on the deck of the Titanic’.

Swinney reveals UK Treasury has now responded to questions on HBOS

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Scottish Government Finance Secretary, John Swinney, revealed in session at Holyrood today (30th October) that he has now received a response from Chancellor Alistair Darling to queries on the recapitalisation of HBOS.

In reference to the proposed takeover of The Bank by Lloyds TSB, the Chancellor had been asked if the £37bn bail-out was conditional on this deal going ahead; and if concessions on competition law would be available to other potential buyers. Mr Darling had also been asked if the Financial Services Authority (FSA) would look again at HBOS in the event of the take-over not proceeding.

According to Mr Swinney: ‘Although the Chancellor doesn’t answer all of the questions, his letter is a helpful intervention into the discussion’.

In describing the letter as making it clear that there are other opportunities for the outcome of the HBOS situation, Mr Swinney quoted some extracts from it.

These included the Chancellor’s statement that: ‘If for any reason the merger did not go ahead, the FSA would need to reassess both banks to determine the extent to which each would need to re-capitalise’. While this statement is generally being interpreted as positive, it is also open to reading as an indication of potential conditionality.

The Finance Secretary told MSPs that it was the Scottish Government’s duty to protect the country’s best interest and this would be the maintaining of HBOS as a independent bank, protecting jobs across Scotland and top management functions at its Edinburgh HQ.

He said: ‘We will continue to have dialogue with the Chancellor to ensure these propositions are fully and properly considered by the United Kingdom Government’.

First Minister in extended talks today at Lloyds London HQ

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First Minister, Alex Salmond, is today at LLoyds TSB’s London HQ to discuss their proposed takeover of HBOS. He is expected to press for maintaining both jobs and top management functions in Scotland.

(1.15pm: The meeting is now over, having lasted for two hours where it was scheduled for only one hour. Mr Salmond has so far said only that each of the two banks have their shareholders to consider while his shareholders are the people of Scotland and it is their interests he has working to protect. Mr Salmond met  with Lloyds TSB senior management – chairman Sir Victor Blank, CEO Eric Daniels and Archie Kane, a Lloyds TSB board member and chief executive of Scottish Widows.

4.20pm: Following this morning’s talks it is said that the Scottish Government and Lloyds TSB have committed themselves to work together to bring about the ‘best result’ in the proposed takeover of HBOS. This comment can usefully be interpreted positively by both the Scots and the English employees of HBOS, each of whom is anxious on the redundancy issue.)

While all parties – the UK Government which brokered the deal and the two banks concerned – maintain their commitment to the takeover, the falling market value of HBOS threatens the necessary approval of it by Lloyds’ shareholders.

There remains a body of opinion that HBOS can survive independently but the Lloyds takeover remains the only offer on the table. The First Minister, in being willing to explore all possible options, has written to the UK Treasury asking if the recapitalisation (bail-out) deal for HBOS will be available to it whether or not it merges with Lloyds, or whether it is conditional on that merger going ahead. He has not yet received an answer.

It is expected that 40,000 jobs will be lost in the merger of the two banks and, since HBOS employs 17,000 people in Scotland, the attrition rate here would be painful.

The SNP’s Alex Neil MSP accused UK Prime Minister Gordon Brown of ‘abandoning’ Scottish jobs after Mr Brown declared that assurances over jobs were ‘a matter for the companies to look at’.

The Bank in poor shape for takeover

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What happens in today’s stock market trading in HBOS shares will be critical. Their value fell steeply on Friday – to 18% below their previous low, valuing the company at £3.2bn. This is around half of the revised terms negotiated by Lloyds recently. The Government now faces a predicament in the size of the stake it takes in the bank.

A senior city investment manager said that banks usually come out of a recession in poor health but here HBOS is entering a recession in a weak state. Jim Spowart, CEO of Intelligent Finance, has asked publicly for the recent Office of FairTrading (OFT) report to the Government (see our news item below) on the HBOS takeover should be made public so that any potential ‘white knight’ can see the full story.

Me Spowart said that a merger will bring 40,000 redundancies (and Argyll is keeping an eye on this) with the dole queues then swollen by that number and in a recession.

The HBOS price is already described as ‘under water’, leaving its current investors unlikely to take the risk of raising yet more cash in a rights offer. A second downwards re-negotiation by Lloyds cannot be ruled out if the takeover is to be approved by its shareholders. A lot depends on today.

UK Shareholders’ Association advises caution on Lloyds/HBOS deal

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At the weekend, small investors in Lloyds TSB and in HBOS were each advised to be wary of the planned deal between the banks. The main focus of its anxiety seemed to lie in the protection of small shareholders in Lloyds. The association warned that buying HBOS would leave Lloyds with a higher risk profile than previously and see it prevented from paying dividends for up to five years. (As we reported, Lloyds has just announced that it has no intention of waiting for this agreed period before paying dividends – a stance so far unchallenged by the UK Government.)

The association also advised HBOS shareholders to be aware that they were being offered little value, saying: ‘Only the Government seems to gain clearly from the current merger proposals’.

Salmond explores HBOS independence then calls for freeze on Lloyds merger

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In a BBC webcast on Saturday the First Minister announced that the Scottish Government is now asking for an answer from Westminster to a single key question. Is the state investment in HBOS, its re-capitalisation, available to HBOS whether or not the bank is merged with Lloyds TSB; or is the capitalisation conditional on that takeover?

If the deal is not conditional, HBOS could probably remain in operation as an independent bank.

If the deal IS conditional, questions will be raised as to why this should be the case. The other banks will have an active interest in the issue. The creation of a bank on the scale of Lloyds/HBOS is anti-competitive and would normally be blocked on those grounds alone.

Mr Salmond pointed out in the interview that the takeover of HBOS by Lloyds would inevitably damage Scotland, with risks to jobs, to the range of services offered by HBOS and to its decision-taking powers.

This position was the first public indication that Mr Salmond would prefer a different outcome to the future of HBOS than the Lloyds TSB offer. He said

‘A few weeks ago the Lloyds TSB offer was the only game in town. Now we’re in a situation where the government has decided to secure the financial sector through recapitalisation.

‘So the central question is – is that recapitalisation available to HBOS as a bank itself?

Today, in his speech to the SNP Conference in Perth, Mr Salmond took the case a stage further. He described the 300 year-old bank as ‘hard-wired into the social and economic fabric of Scotland’ and called for the deal with Lloyds to be blocked while important questions were answered.

He said: ‘If the future of HBOS has indeed been secured then are we not entitled to ensure that any merger is in the public interest – that the public won’t end up paying for the merger, paying for lost jobs and then paying for the restriction of competition.

‘Until these questions are satisfactorily answered then there must be no merger.’

Lloyds TSB sees Brown blink first in early face off

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Lloyds TSB, the recently part-nationalised bank tested the water yesterday and showed where the land lies in the post bail-out world of British banking. There were two key conditions attaching to the rescue deal Lloyds and others signed up to:

  • no dividends would be paid to shareholders until the Preference shares, owned by the Government for the taxpayer, had been paid
  • executive salaries and bonuses would be capped

Lloyds TSB announced yesterday that they would in fact pay dividends much sooner than the agreement dictated; and said flatly that they were not going to limit executive pay.

Gordon Brown simply talked about there being flexibility in the Government’s stance.

So, sooner than we could have imagined after the bail-out, we’ve had a face-off from a rescued bank and it was Gordon who blinked first, regardless of holding the purse strings. If this is a test case it does not augur well for a new focus on regulation. The other nationalised banks will be through the hole in the wall faster than you can shake a Darling at it.

The control issue – which we have consistently highlighted – also surfaced in the Lloyds manoevre. In making their announcement the bank said they were sure the Government would not wish to interfere with the way they made their commercial decisions. They seem to have forgotten – and so does Brown – that the Government operates the pubic shareholding in the bank and that shareholders have a vested interest in questioning commercial decisions.

This confrontation has quickly highlighted the essential contradiction in the post-part-nationalised  status of the banks.

The state now owns 40% of Lloyds HBOS – IF they merge (see earlier and accompanying articles). That is the major shareholding and would normally carry absolute clout. But the Government has refused control.

We’re now in a position where the largest shareholder, the skipper pf the lifeboat, is simply concerned to be inside the boat after the storm, relying on sheer weight to stabilise its direction.

In nautical terms, you can steer this way after a fashion – if the rudder is broken. But if the rudder is still in working order and its control is given over to someone with a different direction in mind, that will prevail.