Lloyds TSB has agreed a £12bn emergency takeover of Halifax Bank of Scotland in a deal that could lead to 40,000 job cuts, the closure of hundreds of branches and financial pain for more than two million small shareholders.
Gordon Brown intervened to smooth the deal's passage amid fears that the alternative would have been bankruptcy for HBOS – or nationalisation. The Government believes that it can get the merger past competition rules because of the severity of the situation.
Ministers told City bosses that HBOS, with 15 million savers and 20 per cent of the entire mortgage market, was simply too important to be allowed to collapse. Two out of every five UK households are customers of the HBOS group, which holds one in every five pounds saved in Britain.
The merger, rushed through in under two days, is likely to lead to large-scale job losses and branch closures. HBOS employs more than 65,000 people in the UK and has 1,100 branches, while Lloyds TSB has 70,000 staff and 1,900 branches.
Yesterday saw the Dow Jones industrial average fall by almost 450 points to a three-year low, despite the US government's $85bn (£47bn) bailout of the insurance giant AIG. Fresh fears were also raised over the two remaining independent US banks, Morgan Stanley and Goldman Sachs, with shares falling 24 per cent and 13.9 per cent respectively.
In 2000, Royal Bank of Scotland cut 18,000 jobs when it bought NatWest. Industry sources said the cuts would be far greater from the Lloyds-HBOS deal, raising the UK estimate of financial sector job cuts to 110,000.
Graham Goddard, deputy general secretary of the union Unite, said last night: "Unite is calling for urgent talks at the highest level with the banks. We will not accept any compulsory redundancies as a result of this merger. The major job losses in the sector are fundamentally caused by precarious investments andtransactions by bankers pursuing large rewards. Staff working in the financial services must not pay the price for corporate greed."
Scotland's First Minister, Alex Salmond, launched a scathing attack yesterday on the "spivs and speculators" who he said had forced a "shotgun marriage" between the two banking groups. He said: "We should not have situations where well capitalised, properly funded financial institutions are subject to incredible speculative attack, and that drives them into decision-making which they otherwise might not have done."
HBOS's 2.1 million small shareholders are also set to lose. The deal, paid in Lloyds stock, will be worth 232p a share, less than a quarter of the pre-credit crunch price. HBOS, whose shares had lost half their value in the past five trading days, closing at 147p, has the biggest small investor base in the country, most of whom got their shares when Halifax demutualised in 1997. Roger Lawson of the UK Shareholders Association said: "It is very questionable whether HBOS shareholders should accept any cheap deal. Clearly the Government would like an arranged marriage."
The deal would be the end of Halifax, a former building society whose roots go back to 1853, as an independent company. In 2001, it merged with Bank of Scotland, founded in 1695, to take on Britain's big four banks but that dream was shattered as the credit crunch made HBOS pay for its massive expansion and reliance on debt markets. With house prices slumping and markets frozen, concerns about HBOS turned to panic this week.
The bank is Britain's biggest mortgage lender and has nearly a third of the country's buy-to-let and self-certified home loans. It has also lent and invested heavily in the commercial property sector, and the bank relies on wholesale markets for nearly half its funding. This week these markets reached new levels of hysteria as bad news came out of the US.
With HBOS shares in freefall, the next stage could have been a Northern Rock-style run on the bank. The Financial Services Authority took the extraordinary step of making two public statements saying that HBOS was secure, but the bank's shares kept falling..
The deal would make HBOS the third mortgage lender to surrender its independence this year. Northern Rock was nationalised in February while Alliance & Leicester shareholders voted on Tuesday to accept a buyout from Santander. A&L's management sold cheaply saying that the dangers of the credit crunch were too great.Reuse content