Lloyds chief insists HBOS was 'finished' before takeover

Published on Wednesday 2 December 2009 21:51

LLOYDS Banking Group yesterday put paid to lingering questions over whether HBOS could have remained independent, telling MSPs that it was "finished" as a separate entity ahead of its takeover last year.

Archie Kane, a main board member of Lloyds, said HBOS had "basically shut down" to the corporate and small business market as it was close to running out of funds. "It is quite clear that HBOS could not have survived on its own," he said. "HBOS was finished as an (independent] entity."

Mr Kane's comments to the Scottish Parliament's banking inquiry are likely to close the chapter on criticisms that the UK government should have intervened earlier to maintain HBOS as an independent bank.

Although Mr Kane admitted that the takeover by Lloyds would not have happened had the government not taken the extraordinary step of waiving competitions concerns, he stressed that HBOS was no longer in any position to stand on its own two feet prior to the decision.

Mr Kane said: "It just wasn't operating because it basically ran out of liquidity and funds."

The banking chief, who presides over Lloyds' insurance business and Scottish operations, insisted that the group is reviving the Bank of Scotland brand north of the Border.

By the end of this year, it expects to have written to all of its SME (small and medium enterprise) customers, telling them that Bank of Scotland is once again "open for business". Mr Kane said he also intends to expand Lloyds' insurance arm, which is headquartered in Edinburgh and includes the Scottish Widows and Clerical Medical brands.

Lloyds employs 20,000 people in Scotland – most of whom work at its high street branch network. It has announced that about 1,500 jobs will be lost before the end of 2010, but Mr Kane yesterday admitted: "That's not to say that will be the end of it."

He silenced suggestions from some critics that the demise of HBOS and Royal Bank of Scotland had anything to do with the Scottish economy. He said: "My view is that the issues that impacted the two Scottish banks were more to do with the models that they used, rather than anything that is intrinsic to Scotland or the Scottish economy."

Mr Kane insisted that Lloyds knew about HBOS's problems before the takeover, but it did not predict the "steep and rapid" decline of the economy late last year, which worsened the losses.

Lloyds last week raised 13.5 billion through a rights issue to avoid participating in the government's asset protection scheme. But Mr Kane said the group had initially discussed ploughing 260bn of potentially toxic assets – about 80 per cent of which were inherited from HBOS – into the APS.