The future of thousands of jobs is in the balance in the wake of Lloyds TSB’s £12.2bn takeover of Halifax Bank of Scotland (HBOS).
While Lloyds dismissed claims that up to 40,000 jobs faced the axe as “ridiculous”, it refused to rule out compulsory redundancies.
The takeover will lead to cost savings of more than £1bn, Lloyds added.
Meanwhile the global markets were calmer after central banks pumped billions of dollars in extra funds.
The UK government also said it is “determined” to ensure the stability of the financial system and protect savers.
Gordon Brown pledged to “do everything to protect depositors in Britain, who need to have confidence in the banking system”.
The takeover by Lloyds TSB values shares in HBOS at 232p each.
By close of trade in London on Thursday, when the deal was announced, shares in HBOS closed up 17%, at 172p, while Lloyds shares shed 17.7% to 253p.
Turmoil
The deal comes as a crisis of confidence on global financial markets has wreaked havoc in recent days:
Gordon Brown said the decision was ‘right’
– A lack of funding has forced global central banks to pump billions of extra dollars into money markets
Russia’s main stock markets have been suspended for two days in a bid to prevent a meltdown after steep falls in share prices
– Banks around the world have admitted they could lose millions after the collapse of US investment bank Lehman Brothers
– The Federal Reserve rescued AIG with an $85bn (£48bn) package amid fears the group, once the world’s largest insurer, could collapse
– Bank of America bought investment bank Merrill Lynch in a $50bn deal earlier this week, another sign of the upheaval of the financial sector
– Meanwhile, the UK’s economic picture remain glum, with latest figures showing mortgage lending slumped again in August
– US President George W Bush sought to soothe nerves by announcing that authorities would closely monitor markets
– The UK’s Financial Services Authority has announced steps to restrict short-selling of shares
Deal welcomed
Effectively the buy-out of HBOS is a rescue deal after its shares plummeted recently amid concerns over the firm’s future.
Under the terms of the deal – which must be agreed by shareholders – HBOS shareholders will receive 0.83 Lloyds shares for every HBOS share.
LLOYDS vs HBOS
Branches – Lloyds 1,900; HBOS 1,100
Customers – Lloyds 16 million; HBOS 22 million
Employees – Lloyds 70,000; HBOS 72,000
Savings – Lloyds is the UK’s fourth largest savings bank; HBOS is the market leader
Retail savings balance – Lloyds £65bn; HBOS £139bn
“This will be a unique opportunity to accelerate and extend our strategy and create the UK’s leading financial services group,” said Lloyds chairman Sir Victor Blank.
Lloyds chief executive Eric Daniels said “You have the largest savings bank, you have the largest current account provider, you have two terrific distribution networks.”
According to the deal agreement “significant cost savings can be made by combining the networks and back offices of Lloyds TSB and HBOS”.
Under the cost saving plan retail branches will be cut, while head office posts, human resources and finance and legal departments will also face cuts.
Analysts have suggested that up to 40,000 jobs could go, but banking consultant Jonathan Charley said HBOS was under pressure not to make such deep cuts.
He estimated that 10% of the combined workforce, or about 14,000 posts, could be cut.
Competition fears
BBC business editor Robert Peston said the government had opted to push through the Lloyds TSB-HBOS tie-up after HBOS voiced concerns that depositors and lenders had begun to withdraw their credit from the bank.
Declan Curry goes through the main points of the deal
Earlier Chancellor Alistair Darling said the government would allow the HBOS-Lloyds TSB deal because financial stability “must trump” competition fears.
But he denied that the authorities had rushed through the transaction.
“It didn’t just suddenly happen,” he told the BBC.
City watchdog, the Financial Services Authority (FSA) welcomed the merger saying it would “enhance stability within financial markets and improve confidence among customers and investors in the UK financial sector”.
“I’m worried by banks merging. Too much money in one pot is dangerous.” Stephen, London
Send us your commentsConcerns about HBOS’s security were so great that even the prime minister was involved in pushing through the deal, our business editor said.
“There were growing concerns in the HBOS boardroom that a climate of fear was being created about its future that could have led to a funding crisis, or a Northern Rock-style run – on steroids,” he said.
Market leader
Meanwhile, Mr Daniels – who will take over the helm of the new firm – was keen to stress that the takeover had not been forced on HBOS.
“There shouldn’t be any impression this is a shotgun marriage or a forced marriage, this is something that’s been looked at for a good long while,” he said. This is the right transaction for HBOS and its shareholders
Dennis Stevenson, HBOS chairman
Lloyds added that the takeover was part of its strategy to build “the UK’s leading finance company”, adding that it also intends to increase the number of competitive mortgages on offer for first-time home buyers.
The creation of such a large bank, which will hold a third of the UK mortgage and savings market, would not normally be allowed under competition rules say analysts.
But the deal was backed by the government, using a special national interest clause, on the grounds that a collapse of HBOS would have had a disastrous impact on the UK.
However, Lloyds chairman Sir Victor Blank did say the Office of Fair Trading would look “very carefully” at the business if it discovered any market abuses in the future.
Scottish focus
The group also moved to allay fears that the takeover would mean a blow to Scotland where HBOS is currently based.
Lloyds said the new group would continue to use The Mound – HBOS’s corporate headquarters – in Scotland, continue to hold annual general meetings in Scotland and carry on printing Bank of Scotland notes.
“In addition the management’s focus is to keep jobs in Scotland,” it added.
HBOS chief Andy Hornby will remain with the company, but his role has not been decided.
“Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector.
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