Opposition to the HBOS merger has enraged the Lloyds TSB board and could have further repercussions

Published on 01/11/2008 13:27

Rumours of a severe clampdown on highly-leveraged deals has heightened speculation that Peter Cummings, right, will leave the bank

IF ERIC Daniels is better known as the quiet man, he's surely soon to become Mr Angry. With hostility towards Lloyds TSB's merger with HBOS showing no sign of abating, Lloyds' chief executive was apparently spitting tacks over suggestions that he didn't care much for Scottish heritage.

Daniels, the man from Montana who has spent a lifetime working in the banking sector around the world, is said to be getting agitated about the way the bank's proposed merger is being called into question and is now caught up in a cross-border row that is overshadowing the commercial objectives of the deal.

With the prize within his grasp, sources say that he'll do whatever it takes to make sure he doesn't let it slip, though that doesn't include offending the Scots. He took exception to a remark that he was "indifferent" to Scotland's banking heritage, a comment that sent opponents of the deal into a frenzy.

On Friday, he attempted to patch up the fast-developing divide, sending Archie Kane, chief executive of Scottish Widows and its newly anointed board member for Scotland, into battle to reject the charges. There was no denial that Daniels had used the word "indifferent". But, said Kane, he meant that senior positions were allocated "irrespective" of heritage and more on merit. It was a slip of the tongue, but it proved costly.

Kane is now being forced to up the ante and take the fight to those who still believe HBOS is worth defending. Arguments about the bank's near-collapse and likely ruin if Lloyds walks away have been lost amid some fruity rhetoric, much of it based on retaining HBOS because it is Scottish rather than whether it is viable.

Tavish Scott, the Liberal Democrat leader, has turned the Save HBOS campaign into a personal crusade, urging Parliament last week to support his cause and winning the backing of 61 votes to 40. The Westminster Government has been urged to offer a separate bailout package to HBOS in the wake of the 37bn package presented to all Britain's banks after the Lloyds TSB "rescue" had been announced.

But the Lloyds camp is said to be irritated by what it regards as speculation and misinformation now being interpreted as fact. Among the worst is that HBOS will be decimated and that 40,000 jobs will be lost – a figure that was described weeks ago by Lloyds TSB chairman Sir Victor Blank as "ridiculous".

Lloyds last week announced the new hierarchy, which was greeted with howls of derision that it would be dominated by Lloyds staff. But with Andy Hornby, the HBOS chief executive, resigning, along with his chairman Lord Stevenson, and Mike Ellis, the finance director, having come out of retirement last year and likely to prefer returning to that state, there were few HBOS directors left to serve on the new board.

Jo Dawson, head of retail, is the only one to get a job in the shake-up, but she was also regarded as one of the few with a profile. She becomes director of wealth and international, which may point to divisions such as St James's Place playing a bigger role in the expanded group.

The big loser was Peter Cummings, the head of corporate, who famously joined forces with some of Britain's biggest tycoons such as Sir Tom Hunter, Sir Philip Green, Robert Tchenguiz, Sir David Murray and Nick Leslau to pull off numerous mega-deals in retail and property during the years of plenty that helped take the bank into the big league of deal-making.

But Daniels is said to be showing less enthusiasm for a strategy that has left the bank exposed to some of the weakest performing sectors. Rumours of asset sales and a severe clampdown on highly-leveraged deals has only heightened speculation that Cummings will leave the bank.

Kane appears to have taken the constant criticism of Lloyds' plans as a personal insult. "We as an organisation and me personally are very sensitive to the heritage of Bank of Scotland," he told Scotland on Sunday. "I operate here. I deal with politicians and opinion formers and I am tuned into that and I am very unhappy that we are portrayed in this fashion."

Kane has been a main board member since 2000 and his role as Scotland representative was forecast by Scotland on Sunday in September, along with a prediction that few of the HBOS directors would survive the merger.

He insists the deal is progressing and with shareholders expected to support the merger at an extraordinary meeting in Glasgow on November 19 it is on course for completion by January.

He will be group director of insurance and there will be some interest in whether HBOS's Clerical Medical will be folded into Widows. Kane says tomorrow's offer document will clarify "high level strategy and direction". There will be some detail on rationalisation and what he called de-duplication – removing duplication – together with information on synergies. But no decisions have been taken on brands or jobs which may prompt another round of rumours.

Mike Trippet, an analyst with Oriel Securities, said there is speculation that Lloyds will tomorrow announce that the terms of the deal been revised again, given that HBOS's share price closed at a 17% discount to the value of the bid on Friday. However, he said: "My hunch is that it will remain unchanged as Lloyds will just want to get on with it."

Kane likened his new role as Scotland rep to that of a "country manager" which would entail coordination of senior level people. There was no mention last week of Susan Rice, chief executive of Lloyds TSB Scotland, but speculation persists that the time may have come for the bank's special status within the group to be revised.

Rice enjoys a heightened position in Scottish business circles, but there have been rumours for some time of discontent at group head office. One source told Scotland on Sunday months ago that questions had been asked about why the group supports a separate board in Scotland and whether Rice really is a chief executive. While she has overseen solid growth, her lack of control over strategy suggests she is more a Scottish regional manager, said one source.

Despite denials, Kane said on Friday that Rice reports to Helen Weir, group executive director of UK retail banking, and that she and other senior staff will be interviewed by the divisional heads as part of "wave two". Kane said: "Susan Rice will be part of that process. Everybody is going to be seen." As for the future of the Lloyds TSB Scotland board, he said: "It has yet to be decided."