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Listen now: Lloyds reveals details of £12bn HBOS takeover
Lloyds TSB unveiled details today of its £12.2bn takeover of ailing rival Halifax Bank of Scotland. The deal will create a new banking giant with around a third of the mortgage and savings markets.
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It will be headed by Lloyds TSB's current chairman and chief executive Eric Daniels.
Mr Daniels today rejected accusations 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".
"We have talked on and off about what a nice combination it would be," he said.
"I don't think there should be any impression that this is a shotgun marriage."
He added: "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."
HBOS chairman Dennis Stevenson said: "This is the right transaction for HBOS and its shareholders."
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Analysts have estimated that as many as 40,000 jobs could be lost from the banks' combined 145,000 staff. HBOS has 75,000 staff and the remainder work at Lloyds TSB.
Mr Daniels said 10 per cent 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 agreement, which is subject to shareholder agreement as well as ratification from the Financial Services Authority, 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 1bn by 2011, or around 10 per cent of the combined cost base.
There will be "elimination of branch duplication" in the retail arm. HBOS has 1,100 branches, and Lloyds TSB 1,900, including 160 of its Cheltenham & Gloucester arm.
There will also be "consolidation of head office functions", including human resources, finance and legal departments.
HBOS, which is Yorkshire's biggest financial services employer, has 14,000 staff in the region. Lloyds does not break down its own workforce by region but employs thousands in the Yorkshire area.
The takeover could also lead to up to 1,000 branch closures including a large number in Yorkshire. According to directories, HBOS has 72 branches in Yorkshire while Lloyds has 112. The most obvious way to cut costs would be to close branches in high streets where there are both a Lloyds and a Halifax.
The fall-out could be catastrophic for workers in the region where Halifax employs 6,000 at its head office. In Leeds alone, HBOS has 14 branches while Lloyds also has 14. In Sheffield Lloyds has 17 branches and Halifax has five, while in York Lloyds has eight branches and Halifax has five.
The deal comes after a run on HBOS shares this week which has seen the group's share price fall as much as 70 per cent.
The Government has confirmed it will waive competition rules to get the transaction, which reportedly follows talks between Lloyds TSB chairman Sir Victor Blank and Prime Minister Gordon Brown, completed quickly.
Chancellor Alistair Darling said the deal was needed to shore up the financial system. The alternative was "very bleak indeed", he said.
Business Secretary John Hutton confirmed the Government will push through the merger on public interest grounds to "ensure the stability of the UK financial system".
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. Mr Hutton's decision follows advice from the UK tripartite authorities - HM Treasury, Bank of England and the Financial Services Authority.
The FSA described today's takeover announcement as a welcome move.
It said: "As previously stated, the FSA is satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way. The announcement of the proposed merger with Lloyds TSB is a welcome move as it is likely to enhance stability within financial markets and improve confidence among customers and investors in the UK financial sector."
Lloyds will offer 0.83 of its shares for each HBOS share, valuing them at 232p each.
Sir Victor will be chairman of the enlarged group under the deal, and Mr Daniels will continue in his role as chief executive. There was no word on the future role of HBOS chief executive Andy Hornby.
Commenting on the takeover agreement, Sir Victor said: "This will be a unique opportunity to accelerate and extend our strategy and create the UK's leading financial services group."
HBOS chairman Mr Stevenson said: "This is the right transaction for HBOS and its shareholders.
"Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector. In addition, the combined group will have excellent brands and a very powerful franchise.
"We are recommending our shareholders vote for this transaction."
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."
Mr Hornby said the reaction from HBOS' customers in terms of withdrawals during the past few days had been "very 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 100bn 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.
At a press conference this afternoon, Sir Victor was asked if there had been any stipulations from Downing Street to protect jobs in Scotland as part of the competition waiver.
He said: "The short answer to that is no."
Her added: "It's too early to make any kind of early commitment (about jobs). We haven't done the exercise.
"We are very conscious of our responsibilities in Scotland - we are conscious of our responsibilities to everyone everywhere".
He went on to say that the two firms first met to discuss a takeover proposal around six weeks ago.
Sir Victor said: "Eric and I had a conversation in my office and we thought it was appropriate to give Andy (Hornby) a call. It was at the tail end of July."
Mr Hornby said: "I think Eric knew because of the relationship we had over the years, he knew that the phone call was going to get a positive response."
He added that he thought that HBOS would 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 said that 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 me made a balanced judgment. We made a judgment...not from our knees...that rather than risk the unknown going forward we would do this."
Sir Victor also confirmed that he met the Prime Minister on Monday and obtained his support for the deal.
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.
"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."
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