Terry Murden's Business Blog: Tartan duo risk derailing the only deal on the HBOS table

Published on Tuesday 11 November 2008 12:11

THE battle for the hand of HBOS is in danger of tipping the bank over the edge. For Sir Peter Burt and Sir George Mathewson to intervene at this late stage puts the deal with Lloyds TSB in serious danger.

As they have no alternative plan, and the prospect of a rival bid remains flaky, it could leave HBOS standing at the altar and facing an uncertain future: or nationalisation.

As I've argued all along, HBOS was only able to stay in the casino credit game while the music played. In a world with too many banks, and the music stopped, it is frantically looking for a chair to sit on.

Burt and Mathewson have been accused of many things, some unnecessarily acrimonious and personal, and they cannot be faulted for wanting to ensure the merger with Lloyds TSB is not a knee-jerk deal. As they say, act in haste, repent at leisure.

But without financial substance behind their proposal to HBOS chairman Lord Stevenson is hard to see what alternative they are offering. Had they snapped up shares or found a backer to support their ambitions then HBOS may have been forced to take their letter more seriously and shareholders would have a greater reason beyond an appeal to Scottish heritage to follow them.

As it is, the figures don't stack up. They argue that as a proportion of total equity capital Lloyds is getting the greater government support. Well, it is one way of looking at it. But the stats can be used to tell it differently. Without government support HBOS would need more than the 11.5bn currently on the table, possibly as much as 15.5bn, according to Jonathan Pierce at Credit Suisse. That would raise the government's stake from 58% to 64% in HBOS alone. Combined with Lloyds the stake is 43%.

Where would Burt and Mathewson get the money from? With a massive funding gap at HBOS and a business model dependent on weak (and weakening) markets, it is hardly a bet worth putting anyone's shirt on.

Burt echoed the words used in my column a couple of weeks ago when he described the board of HBOS as a "busted flush". Well, its the company rather than the board that is bust and I cannot see how he proposes to fix it.

We now await a possible bid from an overseas bank, though time is running out. I named Spanish bank BBVA as a potential bidder back on September 21 and I see it is again doing the rounds along with Bank of China.

Which would customers and shareholders rather have? A stake in a strong UK bank which has strong Scottish roots through Lloyds TSB Scotland and Scottish Widows? Or would they rather throw in their lot with an overseas company that may promise to give Scotland a big say until it decides to move operations closer to home?

* Terry Murden is Business and City Editor of Scotland on Sunday. You can read more of his blogs at the scotsman.com Business Club - click here to find out more