Leading investors in Lloyds Banking Group are calling for the head of chief executive Eric Daniels in the wake of Friday’s disclosure that it will take a £10bn hit on its acquisition of HBOS.
Shareholders are angered by Mr Daniels’s admission that Lloyds had carried out “three to five” times less investigation into HBOS’s balance sheet than is normal for a merger. In a trading statement, Lloyds warned that HBOS suffered a £10bn loss last year, more than double analysts’ estimates. Full-year results will be announced in 12 days.
Even senior Lloyds’ directors have admitted privately that they are “astonished and astounded” at the size of the losses. One senior investor said: “Daniels and the board did not carry out adequate due diligence. The chief executive must be held responsible. These write-downs are far worse – about £5bn worse – than expected.”
The loss is the biggest ever for a UK bank, though Lloyds claimed that its more conservative approach to valuing loan books had driven the increase in acknowledged bad debts. The extent of the losses raised questions over whether Lloyds had enough capital.
A Lloyds spokesman said that Mr Daniels had used “every moment of the time allotted” on due diligence of HBOS. The £12.2bn rescue deal was announced in the autumn and finalised on 19 January, with the Government taking a 43.5 per cent stake in the combined group.
The spokesman added: “The entire board is fully behind the HBOS deal and is supportive of the management. Historically, those deals that have been done in difficult economic circumstances prove to be the most rewarding for shareholders in the long-term.” A source added that Lloyds had bought TSB and Cheltenham & Gloucester during the 90s recession and that they had proved to be good deals.
A senior figure at the bank said that Lloyds would not have to turn to the Government for extra cash. However, the Chancellor, Alistair Darling, has refused to rule out nationalisation.
About £1.6bn of the writedown is the result of the deterioration in the economy, though Lloyds’s balance sheet remains huge at £1 trillion. The main problem has been losses in the corporate division, which has written off £7bn in bad loans. Following the HBOS merger, for which the Government had to abandon its competition rules, Lloyds has the biggest financial services franchise in the UK with 30 million customers.
Lloyds shares closed at 61p last Friday, down 35 per cent as a result of the warning. RBS, which is expected to announce a trading loss of between £7bn-to-8bn in its full-year results, closed at 22p.