The demise of an independent HBOS was an anticlimax as shareholders listened to apologies and voted for the Lloyds merger

Published on Saturday 13 December 2008 13:02

CONTRARY to the old song, sorry no longer seems to be the hardest word. Chief executives and chairmen of Scottish banks are now falling over themselves to apologise for the failings of the country's oldest institutions.

One of the most sought after admissions of guilt came on a damp and dismal morning in the unremarkable setting of the National Exhibition Centre on the outskirts of Birmingham. It was there that the death knell was sounded for an independent HBOS.

Not that many were as bothered as the political pundits would have us believe. In spite of months of vitriolic debate and campaigning to save the bank from takeover, 99% of shareholders – based on the value of shares held – voted in favour of the deal.

Maybe their minds had been made up by that day's announcement spelling out how bad things had become for HBOS. In a statement coinciding with the general meeting, the bank said credit market conditions had become increasingly difficult over the last two months. Impairment charges soared to 8bn in the first 11 months of the year, an increase of 3.2bn on September. Shares, which were already a pitiful sight, fell a further 20% to 67.5p.

For those who had invested their savings in an institution with a 300-year-old pedigree, this was adding insult to injury, but even they knew it was time to throw in the towel and accept defeat.

For the final time, chairman Lord Dennis Stevenson conducted proceedings in what turned out to be another humbling experience for a Scottish banker. He echoed the sentiments of Sir Tom McKillop and Sir Fred Goodwin, former chairman and chief executive of Royal Bank of Scotland respectively, in expressing regret about his role in the rapid decline of the once-mighty bank.

Those expecting a more fiery and emotional meeting would have considered the end of its days of independence to be something of an anticlimax. Stevenson took to the stage in a half-empty Hall 12 to address shareholders who had been politely courted by representatives of the Unite trade union wearing T-shirts bearing the slogan "Secure jobs equals secure bank". Even so, rumours that 40,000 jobs may go counted for nothing as the votes were cast.

Stevenson also spent a little time mingling with the few Scots who had travelled to the Midlands and told him of their sadness about what has happened to Bank of Scotland.

But once proceedings began, there was little left to debate as the chairman spelled out the awful truth about the bank's trading problems before announcing a message that many in the audience expected to hear. "I want to say how sorry I and my board all are about what is happening and in particular the impact on two groups of people. I'm neither happy nor proud to stand here as chairman. I wouldn't expect sympathy for directors. Spare that for those people in the front line."

Perhaps surprisingly, the meeting attracted a mere 300 shareholders, who met his admission of failure with muted applause. While Stevenson at least attempted a show of dignified defeat, the outgoing chief executive Andy Hornby sat low in his seat and appeared reluctant to step forward. When he did stand up to explain why the merger should go ahead, it took no longer than a few minutes. "I'd like to say sorry for the anxiety our shareholders have felt," he said.

Words of regret aside, Stevenson spelled out why the merger had to go ahead. "The reason we're asking you to approve the merger is primarily the effect of wholesale markets on our liquidity." The collapse of Lehman Brothers had moved the financial crisis to a new level, wholesale markets had closed down completely, which led HBOS to seek outside help. As it turned out, this would come from Lloyds.

"It is with great credit to Andy Hornby and his team that they were able to put together the agreement with Lloyds TSB," he said.

As the shareholders dispersed, talk turned to speculation about the second wave of appointments, including that of Susan Rice, chief executive of Lloyds TSB Scotland, and to the much-rumoured job losses across the combined group. Lloyds chairman Sir Victor Blank has already described the oft-quoted 40,000 figure as "ridiculous", though a significant jobs cull is expected.

It is thought, however, that some of these may be included in the sale of assets such as the corporate banking business, said to be in the sights of a US private equity firm.

As for the new set-up in Scotland, there is still uncertainty about how the group's various operations will be merged. Lloyds TSB Scotland has its own board and a separate banking licence to the group, as does Scottish Widows. Spokesmen for the group were unable to shed any light on how the Lloyds TSB Scotland bank would dovetail with Bank of Scotland, given that the company announced on December 5 that "Bank of Scotland will be the banking brand used in Scotland for retail and corporate business for the combined group."

What is clearer is that appointments at the 'front line' level, which will include senior divisional heads, will be announced shortly, probably this week. These are likely to include more HBOS staff, though Lloyds has dismissed suggestions that it is compensating for those key HBOS executives that missed out on the top-level jobs.