The End? Battle to keep HBOS independent suffers fresh blow

Published on Friday 21 November 2008 09:03

THE two banking knights who launched a last-ditch attempt to keep HBOS independent are today expected to throw in the towel, blaming the UK government for scuppering their proposals.

Sir Peter Burt and Sir George Mathewson are set to announce the end of their campaign, amid anger at the position taken by the Chancellor, Alistair Darling, towards the Lloyds TSB takeover of HBOS.

But even with the two big guns out of the running, there remained some hope yesterday that an alternative bidder may yet come forward with a deal which would save jobs in Scotland.

Speaking to The Scotsman last night, Sir Peter said: "He (the Chancellor] made it clear that he would not brook any alternative to the Lloyds offer.

"Obviously, this is very disappointing, but that is why we are seriously considering throwing in the towel at this stage."

Sir Peter, a former chairman of HBOS, and Sir George, a former chief executive of RBS, launched a campaign earlier this month to encourage tens of thousands of small HBOS shareholders to sign up for and support an extraordinary general meeting to oust the chairman, Lord Stevenson, and chief executive, Andy Hornby, from the board.

They also hoped to mobilise shareholders to vote against the proposed Lloyds TSB offer at the HBOS meeting set for 12 December.

A website was set up to promote the challenge and garner support from shareholders.

From the outset, The Scotsman, has spearheaded a campaign for answers about the takeover.

But Mr Darling this week effectively slammed the door on a rival bid when he set tough conditions on any alternative rescue deal.

The Chancellor made it clear that the Treasury would not match its offer to buy shares in a stand-alone bank at the same rate as that for the takeover by Lloyds TSB.

It is feared that a Lloyds takeover of HBOS will deal a damaging blow to Edinburgh as a centre of banking and financial services, with the brunt of job losses – in 1.5 billion of savings planned by the Lloyds directors – falling in Scotland. Latest estimates suggest as many as 60,000 jobs could go in the takeover.

A letter has already been sent by Alex Salmond, First Minister, to the Chancellor, accusing him of breaking his promise of providing "a level playing field" for alternatives to the Lloyds TSB takeover.

Mr Salmond wrote: "The (Treasury] statement sets out the detail for future applications from banks currently raising capital seeking to negotiate 'a substantively new proposal with HM Treasury over recapitalisation'.

"While it is not specifically set out in your statement, there is concern that any move towards a stand-alone option for HBOS would constitute such a 'substantively new proposal' in the eyes of the Treasury."

The issue again flared up at First Minister's Questions yesterday, when Tavish Scott, the Scottish Lib Dem leader, condemned the UK government for its "disgraceful" actions.

He said: "They have ripped up the level playing field, they have broken their promises, they have thrown 20,000 jobs to the wind.

"At the dawn of a recession, Scottish business has found itself raided by the banks and abandoned by Labour and the Treasury."

Nationalist MSP Alex Neil, a former economist who recently abandoned his own efforts to find an alternative bidder to Lloyds, insisted there was still hope. "Even if the two banking knights no longer feel able to ride to the rescue, you can never rule anything out," he said.

"Often in these cases, bids come in late on and while the Treasury may be trying to discourage that from happening, there is always hope."

The Treasury has denied claims there has not been a level playing field for alternatives to the Lloyds TSB deal. It has briefed that the only alternative is full nationalisation, raising the prospect of shareholders losing everything.

The Treasury has claimed the Lloyds offer is the only one on the table and that it is seeking a solution that will provide stability in the banking sector.

However, it has come under fire for lifting competition rules which would have blocked the merger. It is claimed the superbank will be bad for consumers because it will distort the market by creating an institution that has too high a proportion of banking loans and savings business, undermining competition.

RBS chair admits ABN was step too far in a regrettable year

SIR Tom McKillop, the Royal Bank of Scotland chairman, yesterday admitted that the acquisition of ABN Amro, which critics have often cited as a deal too far, was a key factor that forced the bank into partial nationalisation.

RBS shareholders yesterday voted overwhelmingly in favour of raising 19.7 billion in new capital for RBS in a share placing that is largely expected to be taken up by the government next week.

Sir Tom told a meeting of about 250 RBS shareholders the acquisition of ABN and the bank's "strategy of capital efficiency" became problems as the global financial crisis worsened over the past year.

RBS's acquisition of the Dutch bank exposed it to toxic assets holdings affected by the collapse of the US investment bank Lehman Brothers in September.

This, as well as an increased need for wholesale funding, nearly toppled RBS, forcing it to accept the largest share of the bank bail-out offered by the UK government in October.

Sir Tom said: "The acquisition increased our exposure to those wholesale markets within which many of the problems have emerged during the course of this financial crisis."

He added: "In retrospect the higher exposure to assets, which later became difficult to trade, and the need to fund an enlarged balance sheet as access to liquidity became increasingly difficult, increased the short-term vulnerability to the group to the financial crisis as it intensified this year."

Shareholders yesterday voted 99.28 per cent in favour of the government bail-out, which will see the bank offer 15 billion in new ordinary shares, with the government promising to buy up any remaining.

Yesterday the share price closed at 46p, far below the 65.5p offer price, which makes it unlikely many will buy the shares.

The government has said it will buy 5 billion in preference shares, which RBS will buy back in time.

The shareholders who attended yesterday's meeting at the Church of Scotland Assembly Hall on the Mound in Edinburgh demanded that the board, in particular the outgoing chief executive Sir Fred Goodwin, apologise for its mistakes.

Sir Tom apologised at least three times in his speech, while Sir Fred stood to say he too was "extremely sorry".

The general meeting marked Sir Fred's last day as chief executive of RBS, although he is expected to work with the incoming chief executive, Stephen Hester, through to January. Sir Tom will retire in April.

Mr Hester said he was not "tainted" by the crisis which led Sir Fred and Sir Tom to resign. "I owe my job to the fact I haven't become tainted in the last couple of years by banking," he said.