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LLOYDS TSB LOOKS SET TO WIN BATTLE FOR HBOS

TAKEOVER: Lloyds are expected to take over rival bank HBOS

Sunday November 16,2008

By Geoff Ho and Emma Vickers

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LLOYDS TSB investors are expected to rubber-stamp the bank’s takeover of rival HBOS this week after efforts by Scottish banking veterans to scupper the deal failed.

Lloyds will hold an extraordinary general meeting on Wednesday where it will ask investors to back the HBOS deal and its plans to raise £5.5billion to bolster its balance sheet. The bank is widely expected to get the approvals it needs.

The deal is scheduled to be completed early next year. Once that has been finalised, Lloyds will begin work on integrating HBOS, a process that will lead to the loss of up to 20,000 jobs, along with hundreds of branches, during the next three years.

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While Lloyds grows increasingly confident of success, efforts by Scottish banking veterans Sir Peter Burt and Sir George Mathewson to keep HBOS independent appear to have foundered — the pair’s arguments have failed to convince key investors and City institutions.

Burt, who helped create HBOS, and Mathewson — a former chairman of Royal Bank of Scotland — contacted a number of HBOS investors and analysts last week in an effort to get them to support their rescue plan.

They calculated HBOS could sack chairman Lord Stevenson and chief executive Andy Hornby and replace them with Burt and Mathewson.

The two believe they can use government cash to keep HBOS afloat until the credit crunch has subsided.

However, many investors were either unimpressed by the Burt/Mathewson plan or failed to be impressed by claims from Scottish financier Jim Spowart that he was lining up a rival bid for HBOS.

One leading HBOS investor said: “Lloyds looks like a done deal because there are still no other credible options.” An analyst added: “The problem with Burt and Mathewson is that all they are offering to do is work there. That is it.”

City sources also point out that HBOS has an immediate need for capital, to which neither Burt, Mathewson nor Spowart has access.

Elsewhere, UK Financial Investments — the company set up to house the Government’s stakes in the bailed-out banks — intends to hire a head of investment markets.

The winning candidate, who will essentially manage the Government’s bank investments, is likely to come from the private sector and will join a team of fewer than 20 people.

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The Government is determined to keep the operation lean to simplify the decision-making processes, according to one senior source.