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HBOS shares rally as money markets steady
HALIFAX Bank of Scotland's shares surged ahead today amid a revival in confidence over its rescue takeover by Lloyds TSB.
HBOS was more than 31 per cent higher after a slump yesterday triggered fears the deal could have to be repriced to gain the green light from Lloyds' investors.
But shares across the sector rose as investors looked ahead to the expected approval of a 700 billion US dollar (392 billion) banking bail-out in the US tonight.
HBOS has also been bolstered by support from Prime Minister Gordon Brown, who is "confident" the deal will go ahead.
And there were signs frozen money markets had been helped by the Bank of England's efforts to pump in billions extra for nervous banks, with an additional 16.8 billion being offered for the next week.
Under the terms of the HBOS takeover, Lloyds TSB is paying 0.83 of its own shares - currently equivalent to 215p - for each HBOS share, which is trading at around 160p.
The wide gap between these two figures implies the market is dubious about the prospects of a deal at the current price, as Lloyds TSB shareholders, who have to approve the takeover, may not be keen to pay such a big premium for struggling HBOS.
But a note from analysts at Credit Suisse today played down the difference, and highlighted the interests of institutional investors with stakes in both banks in securing a deal.
Credit Suisse said: "We think there's a danger people read too much into the discount. Unlike a 'normal deal', the potential downside in HBOS shares in the event the transaction doesn't proceed might be very significant. And so a relatively small risk of failure translates to a large discount.
"Not only is there considerable regulatory and political pressure to get this deal done, but there are considerable cross- shareholdings between the banks."
Investors including Barclays, Aviva, L&G, M&G and Standard Life all have stakes of more than 1% in both companies.
David Buik of BGC Partners added: "Perhaps the price may be altered ... but the deal must stand. Failure to consummate would be viewed as horrific for the market."
The wider FTSE 100 Index was also up 1.5 per cent today, buoyed by commodity stocks such as oil and mining firms, as the hopes of a US financial rescue staved off fears of a demand slump in a global economic meltdown.
And overnight inter-bank rates eased back from yesterday's highs following the latest efforts by the Bank of England to relieve pressure on banks.
The extra 16.8 billion comes on top of 22.5 billion injected since last Friday.
The overnight sterling inter-bank rate fell back sharply by almost 2 per cent to 4.96 per cent - below the Bank's official 5 per cent base rate - while dollar and euro borrowing costs were also lower.
But the three-month inter-bank rate - a key rate in setting mortgage costs - crept higher again with banks still reluctant to lend to each other for longer terms. This has prompted a raft of lenders to hike rates in recent weeks.
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Weather for Yorkshire
Saturday 26 May 2012
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Temperature: 9 C to 21 C
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