LONDON: British bank Lloyds TSB is in advanced talks to buy rival HBOS PLC to create a 24 billion pound mortgage giant as the credit crunch forces more troubled banks into the arms of better funded rivals.
HBOS, Britain’s biggest home loan lender, confirmed the talks after its shares were battered for a sixth consecutive day on mounting fears about its funding position. Even that didn’t stop the slide, and the shares ended 19 percent lower at 147.1 pence, valuing the bank at 8 billion pounds.
There was speculation a deal was likely to be pitched between 200 and 300 pence per HBOS share, with one source familiar with the matter pinning the likely price at the upper end of that range.
A brief statement from HBOS did not contain any details.
A takeover would mark another chapter in a dramatic shake-up of the global financial landscape as firms with weaker balance sheets or funding strains are swallowed by stronger rivals, with deals encouraged by authorities worried about a wider meltdown.
Boards of the two banks were expected to meet yesterday and the BBC said a deal could be finalized as early as Thursday. Prime Minister Gordon Brown was involved in negotiating the deal, the state-funded broadcaster said.
A spokesman for the prime minister declined to comment on the takeover talks but said: “He speaks to a very wide range of senior business and financial leaders, as you would expect. “The chancellor made it clear yesterday that we will do whatever is appropriate to maintain the integrity of the UK financial system,” he added.
The government is expected to smooth any competition concerns about the tie-up on grounds that it would help financial stability.
Lloyds is Britain’s fifth-biggest bank and HBOS is the sixth-biggest, but they rank fourth and first for mortgage lending and would have a 28 percent share of home loans.
HBOS has lost more than half its value in the last six days — its shares crashed from 308.5 pence on Sept. 9 to an all-time low of 88p earlier yesterday.
Lloyds shares ended unchanged at 279.75p, valuing it at almost 16 billion pounds. The DJ Stoxx European bank index fell 4 percent as the sector was hit hard again.
A deal could be attractive for Lloyds as it could cut costs, increase market shares 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.
“It would be a good deal for Lloyds. We haven’t been allowed to have bank mergers for competition reasons, but there’s a huge amount of overlap and costs that can be taken out,” said Alan Beaney at Principal Investment Management, which holds Lloyds and HBOS shares.
The talks are being encouraged by both the Treasury and UK regulator the Financial Services Authority, the BBC said.
HBOS has come under mounting pressure as it is more reliant on wholesale markets to fund its business than other UK banks, and the cost of borrowing funds in the interbank market continues to rise as the credit crunch has made banks reluctant to lend to each other.
The Bank of England on Thursday said it would allow banks an extra three months to swap their risky assets for government paper, to ease short-term funding strains.
But there was a growing fear that savers with HBOS could withdraw funds and create a bigger problem.
There were no signs of a rush to withdraw yesterday and some HBOS customers welcomed the takeover talks.
“The (possible) takeover is good news. I’m more worried about why the government aren’t doing more,” said Margaret, a 37-year old housewife outside a London branch.
HBOS and the FSA sought to soothe concerns about HBOS’s funding position before the takeover news broke, both saying the bank was well capitalized and continuing to fund its business.