HBOS dream team will be hard to resist for shareholders

JUST AS time seemed to be running out for HBOS to be snatched from under the nose of Lloyds TSB, two of Scotland's biggest hitters have unexpectedly stepped into the frame.

In what could be billed as a clash of the titans, Sir Peter Burt, former chief executive of Bank of Scotland, and Sir George Mathewson, ex-chairman of Royal Bank of Scotland, have made an intervention that will be impossible to ignore.

Lloyds' chief Eric Daniels, "the quiet American", will have to up the ante if his dream of creating a "superbank" is to come to fruition.

Mathewson and Burt are calling for the scalps of HBOS chief Andy Hornby and chairman Lord Dennis Stevenson and for the bank to remain an independent entity. As part of the grand plan, Burt would step in as chairman and Mathewson as chief executive.

Their opinion is that Lloyds is, in fact, being bailed out by its bigger rival HBOS. This goes against the view put forward by analysts in the past few weeks that the Scottish bank is bust and incapable of standing on its own two feet.

As the move by Mathewson and Burt comes in the wake of investment banking group European American Capital joining the battle for HBOS, what was being seen by many as a done deal could be on the verge of falling apart. Given the respect both Mathewson and Burt have in Scotland, Daniels has a fight on his hands if the Lloyds Banking Group is to be created.

Mathewson and Burt have the influence to lead a shareholder revolt that could leave Daniels' plans in tatters. While Daniels is well respected in the City, until recently he has been a relatively unknown figure north of the border.

His low profile in Scotland is in direct contrast to Mathewson and Burt, who have long-standing relationships with some of the county's biggest institutional shareholders, such as Standard Life. They also have a reputation for success in Scotland that will win grassroots support from small investors.

In his role as chairman of RBS, Mathewson was hailed as the saviour of the bank and a linchpin in creating the global giant it had become in pre-credit crunch days.

Mathewson, known for his Scottish Nationalist sympathies, only stood down from RBS in 2006, after spending 20 years with the bank he had joined as director of strategy when it was a small regional player. In 1992 RBS's profits were 32m. He grew that to 8.3bn by 2005.

Mathewson and Burt are more than comfortable mingling with shareholders and getting them on side – something they will be doing more of than ever before in the coming weeks.

Burt oversaw the merger of Bank of Scotland with Halifax. His reputation as a banker is second to none and his skills as a tough negotiator will be called to the fore.

The dream team of Burt and Mathewson may be hard for shareholders to resist.

Time for tax cuts now

LAST week the Government and Bank of England took the UK by surprise with an unprecedented 1.5% cut in interest rates. The question now is whether Alistair Darling will be able to pull a few rabbits out of hat in the imminent pre-Budget report (PBR).

The Treasury has not yet announced a date for the statement, but it is expected to be some time this month.

Darling's second PBR is being presented in a financial landscape vastly different from his inaugural report delivered last October amid rumours of a snap election.

This time Darling may announce some tax cuts and public spending to help rebuild the economy and business confidence. Any such measures would form part of a global drive to use fiscal policy to stimulate growth. A recession-beating PBR will be needed if Darling is to win over voters.

As Russell Hills, head of tax for KPMG in Scotland, says: "The focus in this year's PBR will be the economic forecast and projections for Government finances. After confirmation that total output fell in the third quarter, the UK is only one quarter away from recession – how long does the Treasury think it will last and how deep will it be?"

Darling will be walking a tightrope between combating the worst effects of the downturn, while reassuring the markets that the public finances will be brought back into order once the economy stabilises.

No doubt Vince Cable, the Liberal Democrat voice of reason on the economy, and shadow chancellor George Osborne, will be ready to jump on any weaknesses in Darling's statement. How he must be wishing he could turn the clock back to Brown's boom years.