London HBOS confirms talks with Lloyds

London HBOS confirms talks with Lloyds

Takeover will create a lender with a 28% share of market
(LONDON) British bank HBOS plc yesterday confirmed that it was in advanced talks that may lead to a takeover by domestic rival Lloyds TSB.
‘In the light of market speculation, the board of HBOS plc confirms that it is in advanced talks with Lloyds TSB Group plc which may or may not lead to an offer being made for HBOS,’ HBOS said in a statement.

Earlier media reports that HBOS and Lloyds were in advanced merger talks underscore the speed with which regulators seem prepared to ditch long-held orthodoxies to counter the credit crunch.

HBOS, Britain’s biggest home loan lender, and Lloyds, which has previously been blocked from buying a smaller mortgage bank, can only have got so far by getting a nod from regulators that they want a deal to go ahead.

That unofficial steer follows the British government’s decision in February to put Northern Rock into public hands - the first major nationalisation in Britain since the 1970s and a move that the ruling Labour Party had been keen to avoid.

London-based Lloyds TSB would ensure that its capital ratios are not eroded by an acquisition of Edinburgh-based HBOS, Britain’s largest mortgage lender, Bloomberg reported people familiar with the situation as saying.

A combination of HBOS and Lloyds TSB would create a lender with a 28 per cent share of the UK mortgage market and £pounds;335 billion (S$861.7 billion) of home loans, according to the Council of Mortgage Lenders. HBOS’s market value has plunged 84 per cent from its peak in 2007 to £pounds;9 billion.

‘People are very concerned about HBOS’s ability to fund itself, and this would be a massive boost to Lloyds,’ said Simon Maughan, an analyst at MF Global Securities Ltd in London. ‘Everybody has been wondering what Lloyds is going to do next. It would give Lloyds a hugely dominant franchise.’

Shares of HBOS initially dived for a sixth consecutive day but rallied after news that it was in merger talks with Lloyds TSB.

‘It’s a very obvious deal,’ said Ken Murray, chief executive officer at Blue Planet Investment Management in Edinburgh. He has no holdings in any UK banks. ‘The cost savings would be enormous because the overlap is so vast and they would end up with a very dominant position.’

A deal could be attractive for Lloyds as it could cut costs, increase market share and lift margins to offset the prospect of higher bad debts as the economy worsens, but this would depend on the terms of any deal, analysts said.

The talks are being encouraged by both the Treasury and UK regulator the Financial Services Authority, the BBC said. — Reuters, Bloomberg

Source : Straits Time - 18 Sept 2008

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