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Money talks, and for HBOS it’s still saying ‘merger’

13 Nov 08

It looks increasingly as if the prospect of an Asian white knight for HBOS is not going to materialise despite the best efforts of three giants of Scottish banking.

When two giants of the banking industry get together they can be pretty sure their voice is going to be heard. Sir George Mathewson and Sir Peter Burt are former chief executives the Royal Bank of Scotland and the Bank of Scotland respectively, So it was big news when they announced they had a “Plan B”, together with well respected businessman Jim Spowart, to preserve the independence of HBOS and save it from Lloyds TSB’s takeover bid.

The problem is that while these three are undoubted heavyweights in the financial world, money talks louder than experience. Earlier this week, the BBC “outed” the Bank of China as the unlikely white knight the three are looking to bring in as an alternative source of capital for the troubled HBOS. The attention seems to have scared off the Chinese, however, and at any rate it does not appear that discussions had got anywhere beyond the earliest stages.

Mathewson, Burt and Spowart may well be able to force an extraordinary general meeting at HBOS top confront the existing management team over the merger. Without serious financial backing, however, sentiment and political clout will not be enough to win over institutional shareholders. If the appeal is aimed at small shareholders, many or those are former Halifax depositors for whom the slogan, “save the Bank of Scotland” will be less convincing that “Save my nest egg!”

If there is a credible alternative to the Lloyds TSB takeover, the Westminster government will be under a lot of pressure to be seen to be even-handed. The capital injection offered for the proposed merger should also be available if the banks don’t merge, but it’s very unlikely the taxpayer will be asked to stump up considerable more money just to keep HBOS independent.

The concerns over what a merger would mean for HBOS and for the Scottish economy are well founded, but it looks increasingly as if that is the outcome we are going to have to deal with.


HBOS | Lloyds TSB | Bank of Scotland | Jim Spowart | Sir George Mathewson
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