HBOS brands could be scrapped
Lloyds TSB has refused to rule out scrapping the HBOS brand once it acquires the bank, but says the takeover deal continues to steam ahead.
As part of the deal, both Lloyds TSB and HBOS will raise up to £17 billion in extra capital by selling more shares. Lloyds TBS is looking to raise around £4.5 billion from investors, while HBOS hopes to acquire £8.5 billion.
If the new shares are not taken up, the government will acquire them – on top of the £4 billion worth of preference shares in both of the banks it already plans to buy.
Once the takeover occurs, the combined group would be named Lloyds Banking Group – which could see an end to the historic Halifax and Bank of Scotland brands. The HBOS group also includes Intelligent Finance, Birmingham Midshires (also known as BM Solutions) and Clerical Medical.
“We recognise that there are some majorly iconic brands with lots of history and heritage, which is one of the plus points of the deal,” says Leigh Calder, spokeswoman for Lloyds TSB. “Halifax is particularly strong in the mortgage market for example, but in terms of certain brands disappearing it is too early to tell.”
In an interim statement from HBOS, published alongside the takeover update, the banking group maintained its multi-brand franchise remains strong.
It is not yet known how the combined banking group will be covered by the Financial Services Compensation Scheme (FSCS). Currently, HBOS authorises all its brands as one bank but this may change once it becomes part of the Lloyds TSB group. You can find out how your bank is covered by the FSCS in our article "How protected is your bank?".
Although Lloyds TSB has agreed to use The Mound in Edinburgh as its Scottish headquarters, the group will be based in London and will be run by Eric Daniels, the current chief executive at Lloyds TSB, and its chairman, Sir Victor Blank.
Blank said: "The enlarged group will be more competitive and significantly better placed to create shareholder value in a rapidly evolving UK banking industry than Lloyds TSB would on a standalone basis.”
Although Blank hopes that the acquisition of HBOS would save the bank around £1.5 billion a year, both banks continue to be hit by the ongoing credit crunch.
HBOS revealed it has lost a hefty £5.2 billion since the start of the year, an increase of £2.5 billion since June 2008. The bank was hit particularly hard from the collapse of Lehman Brothers and the Icelandic banks Kaupthing and Landsbanki.
Lloyds TSB has also been forced to write off £270 million on assets linked to sub-prime debts in the third quarter of the year. Mortgage arrears at the bank have also increased by 14% over the past 12 months – which the bank expects to result in a loss of £120 million in the second half of 2008.
Lloyds TSB shareholders will be allowed to vote on the deal on 19 November, with the merger due to be completed early next year if HBOS shareholders agree in December.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.