HBOS shareholders back ‘super-bank’ rescue deal

Dec 13 2008 by Iain Laing, The Journal

HBOS shareholders have given their backing for a rescue takeover by Lloyds TSB which will create a “super-bank”.

Investors also approved an £11.5bn taxpayer bail-out, including £8.5bn in new shares underwritten by the Treasury. Taxpayers are currently sitting on more than £3.4bn in paper losses on this stake after HBOS shares slumped 23% yesterday.

At the meeting held at Birmingham’s NEC, HBOS chairman Dennis Stevenson apologised for the bank’s woes – but management were branded “reckless” and one shareholder said he was “appalled” at the way the business was run.

The attacks came as a gloomy update from the bank also disclosed a further £3.2bn rise in bad debts since the end of September – taking the total to £8bn in the first 11 months of the year.

Following the bank’s capital raising, existing HBOS shareholders will be left with just 20% of the new bank after the takeover, with the Government potentially holding up to 43.5%.

The new company, to be known as Lloyds Banking Group, will have around 145,000 staff and 3,000 branches – although Lloyds TSB is looking to make £1.5bn in cost savings.

Investors gave strong backing to the proposals as HBOS faced an uncertain future and potential nationalisation if the deal was rejected. Based on votes cast before the meeting, the takeover and funding moves were supported by an 84% majority of individual shareholders, and 98% by the value of shares voted.

The bank said a record 56% of HBOS’s shares voted in the meeting. Lloyds TSB investors voted in favour of the takeover in November.

Mr Stevenson said the board of the bank – crippled by the freeze in money markets – was sorry about the financial impact of the crisis on investors, adding that he was “neither happy nor proud”.

He told the meeting that the world was living through “the most pronounced financial crisis since the Great Depression”. The takeover has been opposed by some Scottish businessmen, but the board considered all alternatives, the chairman said.

But shareholder Peter Hapworth said he was “appalled” with the recent management of the bank. He said: “Let’s face facts, it is a bank like yours along with a number of other banks that have caused the crisis in the first place. You all went dashing for short-term gain to fulfil bonuses and salaries.”

Unions fearing thousands of job losses protested outside the meeting, although Mr Stevenson described reports of 40,000 job losses as “scaremongering”.

Mr Stevenson admitted he had had “no specific guarantees” on jobs and staff terms and conditions, although he sought to allay fears over pensions by saying the HBOS pension scheme was “very well-funded”.

The Merger Action Group, which lost a legal challenge against the Lloyds TSB takeover, said a “proud history” had disappeared. Competition concerns over the deal were waived in the interests of financial stability but the MAG had sought to have the deal referred back to business secretary Lord Mandelson and put to the Competition Commission.