Watchdog says HBOS has enough cash to stand alone

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ONE of the most high-profile figures in the UK financial world has indicated HBOS could survive as an independent bank.

Hector Sants, the head of the watchdog the Financial Services Authority (FSA), said all banks now had enough capital – suggesting the Scottish institution could continue without the controversial Lloyds TSB takeover.

Mr Sants – speaking yesterday after an Edinburgh lunch hosted by Scottish Financial Enterprise and the Edinburgh Chamber of Commerce – said he was "conscious of the extraordinary nature of the events over the last couple of days".

"The immediate issue for companies has not been their capital. No-one has run out of capital. The problems with liquidity were do to with the drying-up of wholesale money markets."

He said the FSA was responsible for ensuring it was content with the amount of capital the banks held. And he said it was obvious the authority was "content with the capital being raised by HBOS".

SNP MSP Alex Neil, who has been critical of the deal since it was first put on the table, said: "The genie is out of the bottle. It is quite clear from what the chief executive of the Financial Services Authority has said that HBOS is a viable bank to operate independently. He has blown the case for the merger out of the water completely."

The development came as more high-profile voices raised their concerns about the deal and backed The Scotsman's drive to clarify the details before rushing into it. The Scotsman is concerned the deal is turning into a shotgun wedding and wants to ensure all possibilities are examined before it is consummated.

Dan Macdonald, the chief executive of leading property developer Macdonald Estates, said he was "in total agreement" with The Scotsman.

Vince Cable, the Liberal Democrat Treasury spokesman, said: "There is a danger they are just going to go through with it because that was what they convinced themselves to do. But now it is not obvious that it is the course of action we should be pursuing."

And Tavish Scott, the leader of the Liberal Democrats in Scotland, said: "I am delighted that The Scotsman is also campaigning to save HBOS for Scotland. As your editorial points out, there is still time to save this Scottish institution."

Meanwhile, Alistair Carmichael, MP, called for the Scottish affairs select committee to examine the proposed takeover in the light of the new options created by the Treasury's Bank Reconstruction Fund.

Jim Spowart, a leading businessman who has raised concerns about the deal, told The Scotsman afterwards: "My gist is there is sufficient capital in that business (HBOS] that it could stand alone, on its own."

• The leading group of eight countries, the G8, has backed Gordon Brown's call for an international summit on the financial crisis and to renew stalled global trade talks.

Support for the Prime Minister came yesterday while he was in Brussels trying to seek consensus with other European leaders. He said the summit should involve the US, European nations and the new economic power houses of China and India.

Mr Brown said: "What is keeping me awake at night is my worry that people… are not getting a mortgage; some people are losing their jobs because of this.

"Small businesses are finding it difficult to keep their cash flow …and I am determined that we act as quickly as possible to deal with these problems."

Meanwhile, the French president, Nicolas Sarkozy, who is the president of the EU, said all European nations agreed on the need for a fundamental reform of the global financial system.

• BUSINESS: Banks now 'bulletproof' and must start lending – Sants

No answer was the loud reply

THE six key questions posed yesterday by The Scotsman went to the heart of the Prime Minister's 37 billion banking bail-out.

Last night, the Bank of England and the Treasury were yet to respond to The Scotsman's challenge.

However, Whitehall sources said the government placed protecting the public interests above the need for the Lloyds TSB/HBOS takeover to be approved by the banks' shareholders.

The questions were:

1. Why were the recapitalisation proposals for Lloyds TSB and HBOS not considered and presented separately?

2. Why was there a presumption in favour of a Lloyds TSB takeover – particularly when shareholders of both banks have not yet had an opportunity to vote on it?

3. Why should the government be supporting a solution that stands to trigger many more job losses than those already necessary?

4. Why have assurances not been sought on the retention of key functions in Scotland?

5. What protection will there be for bank customers and consumers as a result of loss of competition across the UK, and particularly in Scotland?

6. Has the government considered alternative options for HBOS? Why could the group not be supported like RBS and given the opportunity to trade out of its current difficulties over the next three years?

Treasury offers banks a boost over dividends

THE three banks due to be part-nationalised will be able to pay dividends to their shareholders years earlier than it was originally believed.

Treasury sources yesterday, made clear that dividends could be paid after a year, depending on the banks' financial health.

This stabilised the share prices of Royal Bank of Scotland, HBOS and Lloyds TSB yesterday after the City raised concerns that the banks would become unattractive to investors if pay-outs were banned for up to five years.

It would also mean that the government would hold stakes of up to 60 per cent in RBS and 44 per cent in the merged Lloyds TSB/HBOS if private investors snubbed the shares offer.

When Gordon Brown, the Prime Minister, announced the 37 billion bail-out of the banks on Monday, he said they would not be allowed to pay dividends until they had repaid the 9 billion of preference shares being bought by the government.

Yesterday, Mr Brown indicated the government was in discussions with the banks over dividends.

He said: "We want obviously to ensure that the banks are recapitalised, and one way of recapitalising banks is not just us providing money but the dividends that would normally be paid out going to recapitalise the banks."

Lloyds TSB shares finished the day 1p down at 150p, HBOS shares were up 0.4p at 85.7p and RBS shares remained unchanged at 65p.

Chancellor refuses to rejig terms of bail-out for banks

ALISTAIR Darling last night denied he was caving in to pressure over conditions attached to the 37 billion bail-out of three UK banks.

The Chancellor insisted he was not prepared to reopen the deal agreed with RBS and merger partners HBOS and Lloyds TSB, which will allow them to receive billions in emergency capital.

The banks' executives are understood to be pressing ministers to rethink a requirement for the government's hefty stakes in their companies to be repaid before any dividends are given to shareholders.

The bar on dividends has been blamed for a slide in share prices since the deal was announced on Monday, amid speculation it may scupper the merger plans of Lloyds TSB and HBOS

Reports that the scheme may be adjusted to make it more attractive to shareholders saw sharp rises in the banks' stock yesterday.

However, Mr Darling last night denied the bail-out conditions were being "rejigged".

"No, they are not," he said. "We reached an agreement with these banks on Sunday … I am not prepared to reopen an agreement reached just a few days ago."

Under the deal's terms, the three banks are prevented from paying out dividends to ordinary shareholders until they have fully repaid 9 billion of preference shares being issued to the government.

The government could end up owning about 60 per cent of RBS, and 43.5 per cent of the merged Lloyds TSB-HBOS bank.

ROSS LYDALL