Buyers line up for parts of HBOS empire

Clerical Medical, an HBOS insurance firm, and Insight Investment, a 112billion asset management business, are believed to be attracting interest.

Their sale could generate billions for stricken HBOS and lessen the need for a Lloyds TSB "rescue".

The development prompted calls for a re-examination of the deal, with business leaders saying the interest showed the takeover was not the only option on the table.

The revelations emerged on the day Alex Salmond, the First Minister, travelled to London for talks with Lloyds TSB executives.

A senior independent investment banking source told The Scotsman he was "aware of buyers" who would be interested in acquiring the two HBOS subsidiaries.

The suitors are believed to be overseas companies that are well established in the financial services sector. Jim Spowart, the founder of Intelligent Finance, said the fact there was interest in the two HBOS subsidiaries showed "we should not be sleepwalking towards the Lloyds deal".

He said: "What this shows is that elements of HBOS are quite a viable option. There are parts which are lucrative.

"Clerical Medical is good. Esure (also owned by HBOS] is good. The banking parts will be good as well. The fact there are these viable parts shows we should not be continuing down the road we are on. I do not understand why we are."

An HBOS spokesman insisted last night that the "only deal that is being considered" was the takeover by Lloyds TSB, and the bank was "not aware of any approach" for the insurance and asset management arms.

However, any such approach would need to be considered by the board on behalf of HBOS shareholders. And if the businesses were sold after a Lloyds TSB takeover takes effect, many HBOS investors would feel aggrieved that the proceeds of two substantial businesses would be heavily diluted.

But any bid for Insight or Clerical Medical would face two obstacles. First, the pricing of financial assets and businesses in today's turbulent conditions would present a major problem. Secondly, while rival UK insurers might be interested, firms in the sector face pressures of their own and do not have the cash for a bid.

In addition, raising finance from banks in the current conditions would be virtually impossible.

"There are loads of deals waiting to be done", one industry analyst said yesterday.

However, an opportunistic overseas company may be able to raise the capital to make a credible offer for the HBOS assets.

Meanwhile, Mr Salmond said his meeting with Lloyds TSB executives had been "constructive" and that the bank was an "honourable company".

The First Minister said Lloyds was trying to uphold the interests of its staff and shareholders, and it was "entitled to do that".

He said he had used the meeting with Sir Victor Blank, the chairman, Eric Daniels, the chief executive, and Archie Kane, the chief executive of Lloyds TSB-owned Scottish Widows, to make the case for keeping jobs in Scotland. Their meeting ran over time by 45 minutes.

An estimated 17,000 HBOS jobs are based in Scotland, as are 7,000 Lloyds TSB jobs, and it is feared thousands could be lost if the merger goes through.

Mr Salmond conceded there had been no fresh guarantees on jobs, and Tavish Scott, the leader of the Scottish Liberal Democrats, accused him of having "thrown in the towel" on the campaign to retain HBOS as an independent bank.

The First Minister said the Lloyds TSB executives had "repeated their commitments that they have a focus on Scottish jobs" and that the Bank of Scotland would still issue notes and keep its corporate headquarters on The Mound in Edinburgh. Such assurances were made in the original announcement of the deal.

However, Mr Salmond said due to the bank's "organisational structure", it was unable to give more details without consulting shareholders.

He said he told the Lloyds executives that Scotland boasted "better-quality people, which you can get at a much more competitive rate", adding that the cost associated with hiring a worker in Scotland was up to 40 per cent lower than in London.

Mr Scott, who accused the First Minister of caving in to corporate pressure,

raised the issue at a meeting in London with Jim Murphy, the Scottish Secretary.

Later, the Lib Dem leader said: "This merger is not a done deal, so it is astonishing that Alex Salmond has thrown in the towel. The First Minister was last in and now seems to be first out on our campaign to keep HBOS independent.

"As First Minister of Scotland, he should be standing up for Scottish interests. Instead of meeting Lloyds officials, he should have sought a meeting with the UK government."

But Mr Salmond insisted it was his duty to meet banking bosses make the case for Scotland to remain a leading financial centre.

Regardless of people's opinions on the merger talks, "Lloyds TSB remains a very respected and honourable organisation", he said.

Mr Salmond said the deal was likely but "not inevitable", adding: "As a likely outcome… my duty as First Minister is to put forward the Scottish case."

He went on: "My preference is an independent bank, but my duty is to make sure, whatever the circumstances, that Scotland gets the best possible deal."

A joint statement from Lloyds TSB and Mr Salmond after the meeting said: "The Scottish Government represented the interests of its 'shareholders' – the Scottish people – by presenting its case on Scotland's three core strengths: a proven track record in financial services, the quality and talent of workforce, and the competitive advantage of Scottish location."

The two assets that could provide HBOS with a major cash injection

CLERICAL Medical was founded in 1824 to help the families of doctors and clergymen and has evolved into one of the UK's biggest pensions and investment providers.

It relinquished its mutual status in 1995 and merged with Halifax in 1997. The two brands were absorbed into HBOS in 2001. Based primarily in Bristol and with offices in Glasgow and across the UK, it deals exclusively with intermediaries and provides pensions, income drawdown products and investment bonds.

Together with other insurance operations in the group, annual premium income last year totalled 1.9billion, with personal pensions accounting for 487million and sales of investment bonds 836billion.

It had an "embedded" value under European accounting rules of 4.7billion and could, in normal market conditions, be expected to fetch between 3.8billion and 5.2billion. However, in today's conditions, any bid would be significantly lower than a year ago.

IN 2002, Clerical Medical Investment Management Limited – which had been incorporated in 1987 – was re-branded Insight Investment.

INSIGHT

In January 2003, Insight acquired Rothschild Asset Management Limited and it is now one of the UK's largest investment managers. As of June 30, 2008, it had 112 billion in assets under management. Nine months previously, its assets totalled 96billion. It manages money for private investors, pension funds, insurance groups and other institutions, as well as providing the investment expertise for some of the UK's best-known financial brands such as Halifax. It employs around 500 and the most recent HBOS interim report showed it had net inflows of 8.7billion in the first six months of this year.

Archie Kane, of Lloyds TSB, has told The Scotsman he believes Insight and Scottish Widows Investment Partnership would be a serious force in the fund management market after the takeover.

Thousands more homes are being repossessed as arrears mount up

REPOSSESSIONS have soared across the UK in the past year, according to figures released yesterday.

Householders are losing their homes at an increasing rate as they struggle to cope with the credit crunch and the economic downturn.

Repossessions increased by 71 per cent in the second quarter of this year, according to the Financial Services Authority (FSA), which said 11,054 homes were taken in the three months to the end of June, compared with 6,476 during the same period of 2007.

The regulator said the number of repossessions had been growing "significantly" as increasing numbers of homeowners struggled to clear arrears they had built up.

Although separate figures are not available for Scotland, charities have said they are concerned about the situation north of the Border.

Campaigners described the figures as "shocking and worse than expected".

However, Andy Young, policy and strategy manager at the Scottish Federation of Housing Associations, said: "Sadly these figures come as no surprise due to the economic downturn.

"The worry is that this is going to cause unprecedented demand for affordable rented housing which landlords may struggle to fulfil.

"Another worry is that tenants already struggling with economic pressures may have problems paying their rent."

According to the FSA, the number of homeowners getting into arrears had remained fairly constant at around 54,000 each quarter since early 2007. But with people increasingly struggling to pay off that debt, the total number who are behind with their mortgage is rising.

A total of 312,000 people were in mortgage arrears at the end of the second quarter, 3 per cent more than during the previous three months and a 16 per cent jump on the same period of 2007. The total value of arrears now stands at 1.6 billion, with 2.58 per cent of all mortgages in arrears.

Graeme Brown, director of Shelter Scotland, the housing and homelessness charity, said: "The UK-wide FSA figures are not only shocking and worse than expected, they highlight the crippling severity of the credit crunch on ordinary homeowners.

"It is easy for the FSA to issue new figures highlighting the problem, but as the key financial regulatory body it must start using its teeth to stop lenders rushing to court to repossess people's homes.

"We still fail to know the extent of the problem in Scotland, as repossession figures solely for Scotland do not exist, but there's no reason to believe that more and more Scots families are not facing the trauma of mortgage arrears and, at worst, repossession."

He said staff were receiving increasing calls to the helpline, which has just received a 40,000 boost from the Scottish Government.

Vince Cable, the Lib Dem treasury spokesman, pointed to a Bank of England report released yesterday which showed the number of homeowners who had borrowed more than 3.5 times their income had shot up to more than a third of borrowers.

"Many of those people are now at great risk," he said. "If conditions deteriorate further, the current stream of repossessions will become a torrent."

The FSA's figures, compiled from returns submitted by around 300 mortgage lenders, also showed that the rate at which mortgage lending is growing almost stalled during the second quarter of the year.

Outstanding debt totalled 1.178 trillion in the quarter, 7.5 per cent more than in the same period of 2007, but only 1 per cent higher than during the first quarter of the year.

Lindsay McIntosh

Brown urges rich states to give more to IMF

GORDON Brown, the Prime Minister, called yesterday for a "substantial" increase in the resources available to the International Monetary Fund to shore up countries struggling due to the financial crisis.

He said an immediate rise in the 150 billion fund available to the IMF would lessen the risk of "contagion" from eastern European countries like Hungary spreading around the world.

Speaking at No 10 before his departure for Paris for talks with Nicolas Sarkozy, the French president, Mr Brown did not rule out an extra British contribution but made clear he believed the bulk of any additional money should come from China and the oil-rich states of the Gulf.

He said: "It is in every nation's interest, and in the interests of hard-working families in our country and every country, that financial contagion does not spread."

He said that in recent days he had spoken with Dominique Strauss-Kahn, the IMF's managing director, Angela Merkel, the German chancellor, and Mr Sarkozy about his proposals. He said they were looking at similar ideas. He has also spoken to Ferenc Gyurcsany, the Hungarian prime minister.

After his talks with Mr Sarkozy, the current president of the EU, Mr Brown will meet Ms Merkel in London tomorrow.

He said: "We have seen in recent days the financial crisis spreading to other countries – middle-income countries, eastern European countries. Capital flight has made a number of countries potential victims of this crisis.

It is clear that the whole of the international community must have an interest in stopping this contagion."

Andrew Woodcock

Banks lend to LILO debtors

THREE high street banks have been extending credit to people on the brink of bankruptcy.

Since April nearly 3,000 people have declared themselves bankrupt under the low income, low assets (LILO) category.

To qualify they must have an income of less than 229 per week and total assets worth less than10,000.

Figures show that 34 per cent of LILO debtors were in debt to Halifax Bank of Scotland, 22 per cent owed money to Lloyds TSB and 16 per cent were in debt to Royal Bank of Scotland

GERMAN financial regulators are to investigate after shares of car maker Volkswagen jumped 82 per cent yesterday, a day after a similar surge.

Speculation on the reason for the rise centred on a reduced number of shares available and on hedge funds needing to unwind bad bets on the share's direction.

The surge came amid reports big investors had been forced to buy scarce shares to get out of mistaken bets the shares would fall.

On Sunday, Porsche Automobile Holding, said it increased its stake in VW to 42.6 per cent plus enough options to give it 74.1 per cent.

Yesterday, Today, Wolfsburg-based Volkswagen's shares spiked as high as 1,005 (785) in Frankfurt trading, nearly doubling yesterday's close.

At that level, Volkswagen was worth some 296 billion euros (232 billion), greater than Exxon's market cap of 214 billion.

They later settled back to close at 945 (740).

WALL Street had another astounding advance yesterday, as the Dow Jones soared nearly 900 points in its second-largest point gain ever as late-day bargain hunters stormed into the market.

There did not appear to be any one catalyst for the surge that saw the Dow nearly double its gain in the last hour of trading. Many analysts said investors were grabbing up stocks in the belief the market had fallen too far in recent sessions.

Some said buying early in the day came from anticipation of an interest rate cut tomorrow by the Federal Reserve.

The Dow rose 889.35, or 10.88 per cent, to 9,065.12. That was its second-largest point gain, coming after the 936 points the Dow jumped on October 13.