The government has bypassed competition rules to allow Lloyds TSB to buy-up HBOS, amid fears that if the deal does not go ahead the entire banking system faces a “bleak” future.
The deal sees HBOS valued at £12.2 billion, but is likely to result in thousands of job losses. The two banks have now agreed the terms of the acquisition and say the HBOS brands – including Halifax – will not be scrapped.
Although some experts yesterday warned that the Competition Commission could block the deal as anti-competitive, the secretary of State for Business and Enterprise, John Hutton, this morning said the deal would go ahead on the grounds the in the “public interest”.
The Enterprise Act allows Hutton to lay an order in Parliament that will trump competition laws and allow the deal to go ahead. This announcement comes as chancellor Alistair Darling said without the deal the outlook was “very bleak”.
Also this morning, the details of the deal came to light. HBOS shareholders will receive 0.83 Lloyds TSB shares for every one HBOS share they hold, which values HBOS at £12.2 billion.
Once the deal is complete, existing Lloyds TSB shareholders will own approximately 56% of the issued share capital of Lloyds TSB with existing HBOS shareholders owning approximately 44%.
In a statement on the London Stock Exchange, Lloyds TSB said the merger would strengthen its position in “these difficult markets”.
It added that it has no plans to reduce the amount of lending done by either of the banking groups, for both mortgages and businesses. It also plans to expand as market conditions improve and will increase its mortgage range to include loans for first-time buyers plus shared equity and shared ownership offers.
Lloyds TSB says the merger will save over £1 billion per year by 2011.
The Financial Services Authority has reiterated that it is satisfied that HBOS is “well-capitalised” with “satisfactory” funding lines.
It says: “The announcement [that Lloyds is buying HBOS] is a welcome move as it is likely to enhance stability within financial markets and improve confidence among customers and investors in the UK financial sector.”