LONDON: Lloyds TSB rescued Britain’s biggest mortgage lender HBOS Plc yesterday in a $22 billion takeover as the government swept aside competition rules to ease the deal through.
The takeover, sanctioned by personally by Prime Minister Gordon Brown, came as banks around the world staggered under the weight of a credit crisis.
Lloyds Chairman Victor Blank said the deal went ahead after Brown told him at a reception on Monday night that the combination would not be blocked on competition grounds.
“The transaction could have only happened if the government was prepared to give support in relation to competition issues,” Blank said at a news conference. “What the prime minister said on the night to me was the government would give that support.” The combined bank will control about a quarter of UK current accounts and 28 percent of home loans.
A plunge in HBOS shares in recent days had raised fears the credit crunch might claim another UK victim after the government bailout of Northern Rock bank earlier this year.
Lloyds will offer 0.83 of a share for one HBOS share, valuing them at 232 pence based on Wednesday’s closing prices, or a 58 percent premium. That valued HBOS at 12.2 billion pound ($21.7 billion), only a quarter of its value a year ago. HBOS shares jumped 17 percent to close at 172.6p, but Lloyds shares fell 15 percent to 237.5p, cutting the value of the deal to 197p per HBOS share.
“We had expected HBOS would struggle to make a profit through 2010, but we had not expected it would fall victim to the credit crunch,” said Sandy Chen, analyst at Panmure Gordon.
“The specter of another run on customer deposits, combined with the run on wholesale funding that HBOS has been experiencing, was what pushed HBOS into the arms of Lloyds TSB, with the support of the UK government,” Chen said.
Lloyds said it expects the deal to boost annual earnings by over 1 billion pounds a year by 2011 through cost savings and boost its earnings per share by over 20 percent a year.
Cost savings are likely to be even higher and Lloyds may be playing down prospects to avoid a backlash about job and branch closures, analysts said. The deal is expected to result in thousands of job cuts and hundreds of bank branch closures. “We will have some redundancies, some overlap,” Lloyds CEO Eric Daniels told Sky Television, but he declined to be more specific.