Damaged HBOS shares put Lloyds bid in jeopardy

Written by Editorial Team

01 October 2008 / by Rachael Stiles

There are fears in the City as the Lloyds TSB rescue of beleaguered mortgage lender HBOS has been thrown into doubt now that shares in HBOS have fallen sharply, meaning that the bid is now over-valued.

HBOS was once again the biggest loser in the FTSE 100 index yesterday, losing 13 per cent of its share value; it is now worth £6.4billion – considerably less than the £9.8billion that Lloyds agreed to pay for the group two weeks ago.

There is now concern that Lloyds will not agree for the deal to go through on the original terms, but the Prime Minister Gordon Brown, who intervened in negotiations, is insisting that the deal will still go ahead, regardless of the 30 per cent disparity between the value and the bid.

It is thought that this bail-out is the only hope for HBOS, but Lloyds TSB shareholders could prevent the sale on the grounds that HBOS is now too expensive. However, some of Lloyds’ biggest investors also have investments in HBOS, and so it is not in their interests to scupper the deal.

“Market conditions are obviously difficult”, Eric Daniels, chief executive at Lloyds TSB said, “but the acquisition of HBOS represents a fantastic opportunity to create the UK’s leading financial services group and to create great value for both sets of shareholders.”

As the owner of Halifax, one of the UK’s biggest mortgage lenders, the acquisition of HBOS offers an opportunity for Lloyds TSB to hold a much larger stake in the UK banking market.

If the deal does go through, the new group’s branch network will rise to 3,000 and its mortgage market share would jump to 28 per cent. It would also hold a third of the UK’s current accounts, and retail deposits worth £321billion.

© Fair Investment Company Ltd