Overseas bank lines up to bid for HBOS

A FOREIGN bank is interested in buying HBOS and has approached the UK government on how to proceed, The Scotsman has learned. It has received assurances from the Treasury that any bid would be treated equally to the one on the table from Lloyds TSB.

The unnamed firm is acting through a London-based merchant banker which first put the proposal to Jim Spowart, a leading Scottish businessman who has raised concerns about the future of HBOS.

Mr Spowart, the founder of Intelligent Finance, has been in talks with Jim Murphy, the Scottish Secretary, about the proposal since Wednesday. Details of the possible bid emerged as the government said the takeover of HBOS by Lloyds TSB should proceed – despite an official report indicating the deal might be bad for consumers and businesses.

Lord Mandelson, the Business Secretary, last night overruled concerns about the takeover raised in an Office of Fair Trading report, which also states that the deal should be referred to the Competition Commission.

Earlier this week, The Scotsman revealed there was interest in the HBOS subsidiaries Clerical Medical and Insight Investments, but it is understood the new suitor is looking at the whole group.

Last night, Mr Murphy said: "I have been contacted by a prominent Scottish businessman and he has talked about the possibility of a second bid. If there was a second, concrete bid then the government would listen."

It is understood Mr Murphy has spoken with Mr Spowart six times since the bank revealed its plans. Treasury officials are thought to have told representatives of the merchant bank that they will talk to their client "from a position of neutrality".

Competition law has been waived for the Lloyds TSB bid and a recapitalisation deal offered to the banks on the basis that the takeover will go through.

Mr Spowart said: "There's a possibility that a financial services organisation has expressed an interest in making an approach to the bank (HBOS]. This came as a result of a merchant banker approaching me and I thought, given what I learned, I should alert the government.

"We are at a very early stage. We are just checking the territory at the moment. The Secretary of State has said he would look at it on a neutral basis. That has been conveyed to the party concerned."

Shane O'Riordain, from HBOS, last night declined to comment on the proposal.

The OFT's 158-page report raised competition concerns over personal current accounts, mortgages and banking services for small and medium-sized businesses. It also cited particular worries about the Scottish market. It is significant as it is the first ruling from a government body that casts doubt on the wisdom of the deal.

However, Lord Mandelson overruled the OFT and gave the go-ahead for the takeover, saying that preserving the "stability of the financial system" outweighed any potential anti-competitive effects.

His immediate rejection of the OFT's view drew a sharp response from business people, politicians and consumer groups. Alex Salmond, the First Minister, said: "The report underlines the need for this proposed merger to be subject to full and proper examination, and not rushed through against the interests of Scotland."

The deal would change the face of banking, creating a giant that will be far and away the biggest British bank, with nearly a third of the UK mortgage market, more than £300 billion in deposits and about 3,000 branches.

The OFT says the £12.2 billion tie-up between the two institutions would create a bank with control of about 33 per cent of British customers' personal bank accounts – and 40 to 50 per cent of Scottish accounts.

The OFT concluded there was a "realistic prospect" the takeover would be anti-competitive for the UK banking market.

The watchdog also said it might be preferable for HBOS to remain independent, with government assistance, then sold on to other parties whose businesses did not overlap so much. The OFT and Lord Mandelson said they had taken into account the views of the Financial Services Authority, the Bank of England and the Treasury – as well as other stakeholders.

Scores of other organisations, including The Scotsman, made submissions warning that the deal would be bad for consumers and small businesses.

But Lord Mandelson said: "I am satisfied the public interest is best served by allowing this merger to proceed without a reference to the Competition Commission.

"I recognise there are concerns about the possible effects of the merger on competition, as set out in the OFT's report. I am asking the Office of Fair Trading to continue to keep the relevant markets under review to protect the interests of UK consumers and the British economy."

Alistair Darling, the Chancellor, announced in September that the government would waive competition rules to allow the Lloyds TSB takeover to go through, saying it was needed to shore up the financial system.

Since then, however, the government has announced a rescue plan for UK banks that some analysts believe would allow HBOS to stay independent.

The government's decision to allow the deal was met with dismay north of the Border, where high-profile voices have warned of swingeing job cuts, irreparable damage to Scotland's economy and serious negative effects on competition.

Tavish Scott, the leader of the Scottish Liberal Democrats, said:

"This is not a done deal because shareholders have yet to see a proposal. The biggest shareholder of all, the taxpayer, is deeply concerned by job losses and the loss of the headquarters."

Alex Neil, an SNP MSP, said: "By any reading of this OFT report, there is no justification for this merger and every reason to stop it. It is outrageous that the so-called Business Secretary has allowed this merger to go ahead and totally ignored the implications for competition, both at a UK level with personal accounts and mortgages, and at a Scottish level for small and medium-sized businesses."

Mr Spowart, said the report showed the deal was "a betrayal of the consumer, a betrayal of Scottish small businesses and a betrayal of Scotland as a whole".

David Alexander, of the Edinburgh property firm DJ Alexander, said: "This merger shouldn't happen, and it is going to be one of the worst things to happen to Edinburgh and to Scotland."

Earlier, Gordon Brown, the Prime Minister, had said HBOS would not exist had it not been for the public bail-out.

After Lord Mandelson's decision, an OFT spokesman said: "We don't take a view of the public interest issues because issues like financial stability are beyond our remit. We respect the Secretary of State's decision."

A spokesman for HBOS said: "We welcome today's decision by the Secretary of State. It represents another major milestone for our deal with Lloyds TSB."

What the OFT report said

• "(In relation to personal current accounts (PCAs)] The merger will remove a firm, HBOS, that was (at least until less than two months ago) a major driver of competition in the market, and strengthen the current market leader, Lloyds."

• "In relation to SME banking, the OFT's concerns are focussed on Scotland and are similar to those in relation to PCAs – the increased incentive on Lloyds to enhance its margins on current customers. The OFT also cannot exclude competition concerns across Great Britain."

• "The market share estimates... indicate that the Scottish SMEs market is highly concentrated, and increase this concentration."

• "There is a realistic prospect that the merger will result in a substantial lessening of competition in (SME (small and medium enterprises)] banking services in Scotland."

• "In relation to mortgages, the OFT considers there is a realistic prospect of an SLC (substantial lessening of competition]."

• "In light of Government's recapitalisation plans... the OFT considers it is realistic to assume that any specific Government intervention and support to HBOS would have involved some level of recapitalisation."

• "The OFT believes that it is realistic to consider that HBOS would be an effective competitive force in the market place."

What Lord Mandelson said

• "I am satisfied that on balance the public interest is best served by allowing this merger to proceed without a reference to the Competition Commission.

• "I recognise that there are some concerns about the possible effects of the merger on competition, as set out in the OFT's report.

• "I am asking the Office of Fair Trading to continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy."

Anger at £3m pay-off plan for top HBOS executives

HBOS could face a parliamentary investigation if it awards golden handshakes of almost £3 million to departing directors, it emerged yesterday.

At least five executives are expected to leave when the Scottish bank is taken over by Lloyds TSB. Their contracts entitle them to combined pay-offs of about £2.7 million.

The sums would make a mockery of the government's insistence that failure should not be rewarded. The Commons Treasury Select Committee said it would investigate if any package was not disclosed.

As reported in The Scotsman yesterday, the superbank created by Lloyds TSB and HBOS will be based in London and almost all of the board will be Lloyds staff. Only two of the Edinburgh bank's top staff have had jobs at the new institution confirmed.

Michael Fallon, deputy chairman of the Treasury select committee said the prospect of secret pay-offs was scandalous, adding: "The public have a right to know about rewards for failure. We'd expect any package to be disclosed and we have the power to require that they are."

But Shane O'Riordain of HBOS said: "Every worker, irrespective of their grade or level, has contractual entitlements."

Royal Bank of Scotland, which is being bailed out with £20 billion of taxpayers' money, has signalled it is preparing to pay bonuses to thousands of staff, it was reported last night.
Middle East trio to prop up Barclays with £7.3bn boost

THE billionaire Abu Dhabi sheikh who bought Manchester City football club two months ago was last night set to pump up to £5 billion into Barclays.

The bank yesterday unveiled Sheikh Mansour Bin Zayed Al Nahyan, a member of the emirate's royal family, as a major investor in plans to raise up to £7.3 billion to strengthen its finances.

Two other existing Middle East investors – the Qatari Investment Authority and Challenger, which represents Qatar's royal family – are also putting up more funds.

The trio could own nearly a third of the bank between them following the capital-raising exercise, with Al Nahyan's stake a potential 16.3 per cent.

The sheikh's billions helped lure Brazilian star Robinho to the Premiership football club for a British record £32.5 million in the summer.

Now Barclays hopes his wealth will help it meet the tougher capital requirements called for by the Financial Services Authority to enable banks to withstand financial turmoil.

The Middle East cash helps Barclays shore up its finances without using public funds – meaning it will be able to pay dividends to its shareholders, unlike Royal Bank of Scotland and Halifax Bank of Scotland.

Chief executive John Varley said the growing presence of Middle Eastern investors reflected the "significant shift" in the availability of capital and economic power over the past five years.