Wednesday, Sep 17, 2008
And it's a done deal
BBC News: Lloyds TSB seals merger with HBOS
Just like that! Two of Britain's Big Five banks have completed an agreement on a merger. Competition be damned. Can't believe how quickly this has gone through.
Asking price 232p per HBoS share - a premium of 58% over their closing price today of 147p. No mention as to why Lloyds would want to pay over the odds for this toxic wastedump, though it's likely to that Darling et al are sweetening the deal via backhand channels.
Posted by little professor @ 10:38 PM (1633 views) Add Comment
24 Comments
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1. jonb said...
Yes, there must be some cheap Bank of England to fund this. Lloyds is about half the size of HBOS, and I can't see how they could possibly find the money to pay cash for HBOS in this market.
2. little professor said...
The deal is set to be formally announced on Thursday morning, says BBC business editor Robert Peston.
There are real concerns about Peston's role in this whole affair. He "broke" the news about the proposed merger this morning, but this was preced by some wild swings in the HBoS share price, suggesting some insider dealing. Neither HBoS nor LLoyds issued a statement to the stock market about the proposed takeover for over four hours, in violation of trading laws. And now he breaks the news about the completion of the merger. Who's feeding him, and why?
http://www.order-order.com/2008/09/who-told-peston.html"
3. nooneo said...
Jonb.
Lloyds TSB was, only recently, a wee bit smaller than HBOS and with a much better balance book. HBOS has a MASSIVE mortgage market (!) in this country, whereby LLoydsTSB has a more broad range of investments. It, by far, has faired better in these most dangerous of times, than any other UK bank.
They have taken a very brave step, and played the blubbermint like the fools they are. HBOS should never, ever have been in trouble, they have been relatively prudent and there mortgage market and savings ahould have easily seen them through this mess.. I suspect that dealers and traders who favour LLoyds have helped an awful lot in underming what should have been a safe bet. Lloyds have , in effect, made themselves the biggest bank in the UK, if not Europe with this, against all the rules the introduced to allow fair trading and no monopolies.
Lets hope that the property market, which must now be suffering from rogor mortis by now, doesn't do for them too when the runaway train of defaulting and no-hopers mortgage holders who bought into this ponzi property market, finally give up the ghost and stop paying heir mortgages and file for bankruptcy themselves.
These are now extremely dangerous times. I can no longer get 6 cans of St. Ella for a fiver, boy am I p!ssed !
4. mark wadsworth said...
Before you go round criticising these deals, you have to understand the issues:
1. The primary, underlying losses arise from reckless lending to overstretched borrowers on overvalued houses that are falling in value. That cannot be helped. The bulk of these losses will be borne by mugs who are paying huge mortgages while nursing a capital loss. Some of them will lose their jobs, default, be repossessed and go bankrupt, in which case the original mortgage lender bears some of the loss.
2. There are then secondary losses, because original mortgage lender has resold mortgage assets to a jersey based SIV. The original mortgage lender worries about getting its money back from the borrower, while owing the SIV the full amount.
3. And tertiary losses, because the SIV has sold the mortgages on to an investment bank.
4. Who sold them on to a hedge fund, etc etc. Ad infinitum.
So all the parties in the chain are worried about the same loss. It's double, treble and quadruple counting.
The reason that the credit markets are 'frozen' is because nobody trusts anybody else any more, because not even the banks, the hedge funds and the SIV's know where the loss is going to end up. (the 'counter party risk')
So ... and here's the clever bit ... if lots of banks etc can merge, at least they can eliminate the counter party risk. The underlying primary loss (the overstretched borrower who might default etc) is the same, but the enlarged bank knows it will only have to bear the loss from defaulting borrowers once, and not twice.
I explained it at length here, in summary here and in short form as applied to Lloyds TS/HBOS merger here.
It's all quite simple really.
5. peter_2008 said...
Well, my saving with HBOS is safe (for now).
But what if the new bank go under as well?
6. Yoss said...
Can't wait for the 8.5% fixed 2 year deals! Far play to Lloyds, they held back and struck at exactly the right time. SVG's kicking in, and a balance sheet that well...needs balancing, gawd bless a 33% market share. (Excluding those alreasy with NR)
7. japanese uncle said...
Lloyds TSB's attempted merger with Northern Rock was blocked by the BoE for fear it would 'upset the market'. If Lloyds was allowed to proceed, things could have calmed down without a problem. Central banks' behaviour is only too questionable.
8. Amos said...
If I was a Lloydstsb shareholder I'd sell right now.
They have dramatically increased Lloyds exposure to the property market
and paid a lot more than the market price.
How on earth can proper due diligence be done in the timescale?
The Lloyds board have no detailed knowledge of what's on the HBOS balance sheet.
9. japanese uncle said...
Anyway unless the merged mega bank split its registeration for the purpose of the Financial Compensation Scheme, I will have to transfer money from Lloyds TSB to another bank or BS which is least likely to merge with the mega bank. This is a serious issue, the FSA and government must address ASAP.
10. little professor said...
But what if the new bank go under as well?
In Japan we had the reasonably stable banks bail out the smaller banks that were struggling under the weight of bad loans. Result: The whole financial system was poisoned, and still hasn't recovered to this day.
11. little professor said...
Yikes. Close italics
12. gardeniadotnet said...
@ mark wadsworth, 11.02pm said...
> So ... and here's the clever bit ... if lots of banks etc can merge, at least they can eliminate the counter party risk...... It's all quite simple really.
So Mark, if EVERY bank merges to become ONE BIG BANK, there will be NO counter party risk.
Am I being clever or simple?
gardenidiot
13. mark wadsworth said...
Gardenidiot, that is the ultimate logic, which I covered in part 3 of today's series on 'Sorting out the credit crunch'.
14. quiet guy said...
I don't see how Lloyds can lose here because they are too big to fail now. If Lloyds get into trouble, we will have to bail them out. I just don't see how the government can let this megabank fail.
15. gardeniadotnet said...
@mark, 11.30pm
Two initial questions arise from a quick look at your 'mega-bank' blog...
If you were the head of said bank:
1. What rate of interest would you charge?
2. What would your lending criteria be?
gardenidiot
16. Planning4acrash said...
Combine to be too large to not be bailed out.
17. paul said...
I'm relieved and repulsed by this merger.
It seems the least worst scenario of horrendously unjust episode in British banking.
18. Dave said...
HBOS is not a 'toxic waste dump'. It is well capitalised and healthy.
The reason its gone the way it has is purely because of the market seeming how much it has funded out of the money markets. HBOS was not anywhere near collapse and its only problem was exactly that of the loss of confidence which meant the serious problem of a cashflow problem causing actual bankruptcy. Lloyds are getting an absolute bargin (given they paid in banking shares and not cash).
The fact that HBOS (rather than investment banks heavily involved in the derivatives market, or NR which had a plainly silly approach in the money markets) has fallen like this shows just how serious things have become. We are entering a 2nd great depression.
19. Maihem said...
So if you had 35K in HBOS and 35K in the group in which LLoyds is collated, then you now have 70K in just one banking group? there'll be a lot of fuss in the next couple of weeks as people move half their savings away. Depending on how scared savers are right now, Lloyds/HBOS could have just halved its deposits.
20. gardeniadotnet said...
@paul said...I'm relieved and repulsed by this merger.
An unusual juxtaposition of emotions.
Then again, these are unusual times.
gardenidiot
21. mark wadsworth said...
@ Gardenidiot 13
1. High
2. Strict
22. mark said...
i am off to bank today to empty my account with them, this does not feel right...
23. mrmickey said...
Mark HBOS or lloyds or both ?
24. Stevie Dee said...
It's all quite interesting.. I keep thinking of pirates for some reason. In the olden days of the shipping trade circa 1700s, the notorious pirates would disrupt cargo's of both the french & english fleets. So my feeling is that the name "Spiv's" may be best replaced with "financial pirates" or "financial terrorists". "Jolly Scot" (GB), "BlackBrow" (AD) or "Silver Tex" (GW).