Lloyds TSB unveiled a mammoth £12 billion takeover of ailing Halifax Bank of Scotland today in a deal set to change the face of UK banking and cause hefty job losses.
Click here to read Scott Reid's blog on HBOSThe acquisition will create a new banking giant with nearly a third of the UK mortgage market, more than £300 billion of deposits and around 3,000 branches – making it far and away Britain's biggest bank.
Chancellor Alistair Darling confirmed the Government would waive competition requirements to ensure it went through, saying it was needed to shore up the financial system. The alternative was "very bleak indeed", he said.
The takeover has also been welcomed by UK financial regulators including the Bank of England, although it is still subject to shareholder approval.
There is speculation that as many as 40,000 job losses could follow, although this figure was described as being "on the high side" by Lloyds TSB.
HBOS employs 75,000 people and has 1,100 branches in the UK. Lloyds TSB has around 70,000 staff, with 1,900 branches.
The proposed boss of the new outfit, current Lloyds TSB chief executive Eric Daniels, said 10% of the combined group's costs would be saved. Of the 40,000 job loss estimate, he said: "Undoubtedly there will be some job losses. But I don't recognise that, it seems on the high side."
The deal is widely seen as a rescue for HBOS and comes amid a near-unprecedented week of financial turmoil which saw a run on the group's shares over funding worries. HBOS stock plunged as much as 70% yesterday from Monday's opening price of 282p.
Mr Daniels also rejected accusations that the takeover represented a "shotgun marriage" between the firms, saying the groups had been eyeing each other for years, with the most recent talks talking place over the "past several weeks".
He said: "The two companies have been talking to each other over the years. We have talked on and off about what a nice combination it would be.
"I don't think there should be any impression that this is a shotgun marriage."
Prime Minister Gordon Brown reportedly met Lloyds TSB chairman Sir Victor Blank on Monday as turmoil raged in the financial markets in the wake of the collapse of US investment bank Lehman Brothers.
Mr Daniels said: "The Government did help facilitate the process of being able to bring together the companies. But this isn't a brokered marriage.
"There is compelling logic behind bringing the two companies together."
Business Secretary John Hutton confirmed the Government will push through the merger on public interest grounds. An order allowing this will be laid before Parliament when the House returns after the summer recess.
Currently public interest grounds cover only plurality of media ownership and national security.
The Bank of England and the UK's main financial regulator, the Financial Services Authority (FSA), also welcomed today's takeover move. The FSA said it would enhance stability within financial markets and improve confidence among customers and investors.
London's leading share index, the FTSE 100 Index, was up 1% today. It slumped nearly 10% over past three days during the market turmoil.
Asked about what would happen to brand names such as Halifax, which is Britain's biggest mortgage lender, the historic Bank of Scotland marque, and Lloyds TSB's Cheltenham & Gloucester savings and lending business, Mr Daniels said no decision had yet been made.
"These are early days," he said.
"We will be working over the next few months, figuring out how to best brand the individual parts of the business."
HBOS is the UK's biggest mortgage lender and savings bank, with an estimated 20% share of the mortgage market at the end of last year and 22 million customers.
Lloyds TSB, which does the bulk of its mortgage lending under its Cheltenham & Gloucester brand, is the UK's third biggest lender in terms of outstanding home loans. At the end of June it had 9% of the UK mortgage market.
The company is also the UK's third biggest savings bank, with £65 billion saved through it and Cheltenham & Gloucester.
The takeover agreement said: "Significant cost savings can be made by combining the networks and back offices of Lloyds TSB and HBOS."
It added that the takeover would result in "cost synergies" of £1 billion by 2011, or around 10% of the combined cost base.
There will be "elimination of branch duplication" in the retail arm, and "consolidation of head office functions", including human resources, finance and legal departments.
Unite deputy general secretary Graham Goddard said: "Finance workers should not have to pay the price for the greed and excess of the short sellers and speculators. Thousands depend on HBOS and Lloyds TSB for their livelihoods. Unite will oppose compulsory redundancies.
"We expect the restructuring plans to be agreed with the staff representatives at the bank. We are urging the banks to remember the real people working for them who are not responsible for the credit crunch."
The deal comes after a run on HBOS shares this week which saw the group's share price fall as much as 70% to 88p at one point. Lloyds is offering 0.83 of its shares for each HBOS share, valuing them at 232p each.
HBOS chief executive Andy Hornby said the reaction from his customers in terms of withdrawals during the past few days had been restrained.
He said: "The share price movement in the last few days was very concerning. But customer reaction has been very restrained.
"We have not been threatened at all by any severe customer reaction."
HBOS's shares plunged as analysts said the group was facing more than £100 billion of refinancing over the coming months, and as the cost of bank borrowing rocketed.
Asked if his group's business model had been too risky, he said: "I accept that wholesale funding has been increasingly difficult to obtain over the past 12 months.
Businesses have had to adapt, he said, adding: "Today's deal completes that process."
Mr Daniels, who called the takeover agreement a "landmark day for the British financial services industry", was unable to specify any future role for Mr Hornby.
He said he had long been an admirer of the HBOS chief executive, but that in terms of his board membership of the combined group, "it's very early days".
"We think there's a lot of talent throughout the organisation," Mr Daniels added.
Depending on shareholder agreement, the deal could be finalised by early next year, he said.
The full article contains 1096 words and appears in The Scotsman newspaper.
