Fears continued for thousands of jobs tonight after Lloyds TSB agreed the UK's biggest bank rescue deal with ailing rival Halifax Bank of Scotland.
The Government-approved £12 billion takeover, which values HBOS at a fraction of its worth six months ago, will create a "mega-bank" with nearly a third of the UK mortgage market and more than £300 billion of deposits.
It will also have around 3,000 branches, leapfrogging industry titan Royal Bank of Scotland's 2,300 sites and dwarfing HSBC, which has around half.
The announcement came on yet another dramatic day for the markets which saw a £100 billion liquidity injection from the world's central banks, and fears mounting over the future of embattled US investment bank Morgan Stanley. Its share price fell again heavily today and has nearly halved during the past week.
Prime Minister Gordon Brown, who gave the Lloyds TSB-HBOS deal competition clearance during a meeting with Lloyds TSB chairman Sir Victor Blank on Monday, said today the deal was needed to help shore up the UK financial system. HBOS suffered a run on its shares this week as fears over its funding position grew in the wake of Monday's collapse of US investment bank Lehman Brothers.
But the Lloyds TSB-HBOS tie-up has prompted fears for thousands of the 145,000 staff employed by both firms, with promises from Lloyds of "significant cost savings" when the networks are combined.
The proposed boss of the new 'mega-bank', current Lloyds TSB chief executive Eric Daniels, said 10 per cent of the combined group's costs would be saved.
HBOS employs 75,000 people and has 1,100 branches in the UK. Lloyds TSB has around 70,000 staff, with 1,900 branches.
There is speculation that as many as 40,000 job losses could follow, but Mr Daniels said of the figure: "Undoubtedly there will be some job losses. But I don't recognise that, it seems on the high side."
Banking analyst James Hamilton said an estimated £1 billion in annual cost savings forecast from the deal could double "given that there is almost complete geographic and product overlap and you do not need two branches on every high street".
He also warned that consumers could see less choice as a result of the tie-up.
"We expect the deal to dramatically reduce competition for almost every product line in UK financial services so increasing the long-term profitability."
HBOS is the UK's biggest mortgage lender and savings bank, with an estimated 20 per cent share of all mortgages at the end of June 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 mortgage lender with 9 per cent.
Defending the deal's competition waiver, Chancellor Alistair Darling said: "Financial stability, rather like national security, can trump competition concerns."
The alternative was "very bleak indeed", he added.
The takeover has been welcomed by UK financial regulators including the Bank of England, although it is still subject to shareholder approval.
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Sir Victor revealed that the banks had been eyeing each other for several years and executives first met to discuss this particular deal six week ago.
He said: "The one thing we saw from the beginning was that it was going to be very difficult for us to put together a combination which would satisfy ... a competition inquiry."
Of the agreement reached with Mr Brown on Monday, he added: "I asked if the Government was prepared to give support in relation to competition issues. What the Prime Minister said was that the Government would do that."
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."
Unite deputy general secretary Graham Goddard said he would oppose compulsory redundancies.
"Finance workers should not have to pay the price for the greed and excess of the short sellers and speculators," he said.
"Thousands depend on HBOS and Lloyds TSB for their livelihoods. We are urging the banks to remember the real people working for them who are not responsible for the credit crunch."
Under the takeover deal, Lloyds is offering 0.83 of its shares for each HBOS share, valuing them at 232p each.
The run on HBOS shares saw the group's share price fall as much as 70 per cent to 88p at one point.
It happened as analysts warned the group was facing more than £100 billion of refinancing over the coming months, and the cost of bank borrowing rocketed.
Chief executive Andy Hornby, whose position in the new group remains uncertain, said he thought that the bank could have continued funding successfully if the Lloyds deal had not materialised.
"But I didn't want to take that risk in this febrile market," he added.
"I believe we would have continued to fund successfully, but we were not prepared to take that risk."
HBOS chairman Dennis Stevenson also stressed HBOS was not "on its knees" when it agreed to the takeover.
He said this week had seen an "extraordinary acceleration" of the unusual market conditions seen over the past year.
"Despite these terrible conditions, despite the acceleration over the last week, HBOS has funded itself throughout.
"But we made a balanced judgment. We made a judgment...not from our knees...that rather than risk the unknown going forward we would do this."
He told HBOS' two million small shareholders that the deal presented "substantial upside" to the share price.
HBOS shares rose 17 per cent today, while Lloyds TSB's were down 15 per cent. Analyst Mr Hamilton warned the takeover did not solve the problem of HBOS's funding issue.
"The deal just creates a larger group with an even greater funding requirement," he said.
Depending on shareholder agreement, the deal could be finalised by the end of this year or early next year.Reuse content