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Insane markets and HBOS

Robert Peston | 08:30 UK time, Wednesday, 1 October 2008

First things first: if Lloyds TSB's takeover of HBOS were to collapse, HBOS itself would collapse and we'd all be staring into the abyss.

Halifax and Lloyds TSB signsSo that's not going to happen.

The deal has been agreed by both boards.

It's being backed with legislative help by the government.

The prime minister has staked his career on this rescue takeover.

It's going to happen.

But the gap between the value of what Lloyds is offering in shares and the market price of HBOS shares is so wide as to be impossible to ignore.

As of last night, HBOS's share price was 122.4p, while the per-share value of Lloyds TSB's offer was 188p.

So if you believe that the terms of the deal won't and can't be changed, the current HBOS share price is an opportunity to buy £10 notes for £6.60.

That looks too good to be true. And the normal investing rule is that if it looks too good to be true, then don't touch it even if you're in a radiation-proof suit.

But normal rules don't apply right now.

There's a wonderful quote in this morning's Guardian from an unnamed "major" investor, who said to that newspaper: "the market is suggesting that the deal is not going to happen. And the market is usually right."

The market is usually right? Where has he or she been for the past few years?

In that period, the market has been comprehensively, systematically wrong about almost everything. But don't get me started.

I feel a burning desire to find out whether this "major" investor is by chance looking after my pension, because if so I might as well top myself.

To be clear, however, I am not saying the terms of the deal won't be renegotiated.

That'll depend on one thing and one thing only - whether the two banks fear that the deal will be voted down by Lloyds TSB's shareholders.

Now, there's a 50% to 60% overlap between the shareholders of the two banks.

And if those shareholders were being rational, they would vote for it - because they are simply exchanging one load of paper, their HBOS shares, for another load, Lloyds TSB shares, and the terms of the exchange should be irrelevant to them.

For Lloyds TSB to do the deal, it needs a simple 50% majority of those voting in a poll of its own shareholders.

In spite of the noise from a few recalcitrant shareholders, it's not obvious that the majority won't be secured.

What's more, the date for the vote hasn't even been fixed yet. And markets are so volatile, there's a risk that any revision of the terms at this second would have to be unscrambled again in a few days.

For both boards, it's time to put on the tin hats and explain to their shareholders why the terms were set as they were only a few days ago.

Which implies that those investors betting that Lloyds will massively reduce the price may be burned.

Maybe there will be a downward tweak in the value of the offer. Maybe not.

Markets are exhibiting all the symptoms of madness, so it's conceivable that right now there is an opportunity to buy pound notes for rather less than their face value.


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  • Comment number 1.

    Robert it is worth remembering that deal spreads are usually set by the actions of arbitrageurs but with the ban on short selling they are unable to buy HBOS and sell Lloyds as they would normally do.

    It is therefore wrong for people to read to too much into how the HBOS/Lloyds spread is trading becausd they are trading as two independent stocks.

  • Comment number 2.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 3.

    Ah. Where is a short seller when you need one. If you think the deal is going through you need to buy HBOS AND sell Lloyds - but shorting is not allowed. To buy HBOS outright might be OK - unless all bank shares suffer.
    I think the deal does go through unchanged - too much invested in this for anything else to happen. The big owners of shares will not rock the boat.

  • Comment number 4.

    It's all relative.......and probably meaningless in the longer term. By the time hyper-inflation sets in and the pound has devalued to virtually nothing the price difference won't be worth losing any sleep over!

  • Comment number 5.

    Menedemus, the BOS in HBOS is not the RBS that bought ABN AMRO......... although your views about pigs and pokes may still be correct.

  • Comment number 6.


    Would the terms of the deal be affected by an exodus of deposits from HBOS to the Irish banks, given the 100 percent guarantee being offered by the Irish government?

    I mention this due to the Scottish and Irish celtic connection which is a lot stronger than appears on the surface. This is either a very shrewd move by the Irish, or it could cause havoc around the rest of the European Union as other governments scramble to catch up and offer similar terms.

    As you quite rightly point out in your blog, there is an awful lot of madness about in the markets.

  • Comment number 7.

    No. 2, you forgot the word 'Royal'. Otherwise, your post makes perfect sense!

    Moderator, please check basic facts of posts.

    Lloyds is getting a good deal in buying HBOS, unless the whole western financial system collapses- in which case, who cares?

  • Comment number 8.

    Why can't Lloyds let HBOS go bust and then jump to buy the assets only at a fraction of a cost?

    What has Lloyds got to gain by buying in the exposure of HBOS? Tax concessions offered by the soon-to-be-gone Mr Brown? What?

  • Comment number 9.

    re 2

    One of the biggest problems in a market as febrile as this is misinformation.

    I have no idea where the idea that ABN is in trouble came from - but whatever the merits of this (malicious?) rumour it is definitely true that ABN is NOT owned by BoS or HBOS.

    It is in fact owned by Royal Bank of Scotland (and for the avoidance of doubt this is TOTALLY unrelated to BoS) - and RBS has parcelled out elements to Fortis (and maybe it was Fortis's need to re-finance that was the origin for this "rumour") and to Santander.

    For goodness sake get your FACTS right - even if you cannot sort rumour from impending news!

  • Comment number 10.

    #6 - excellentcatblogger

    I think Brussels is in the process of questioning the anti-competitive nature of Irelands 100pc guarantee.

    Why wont Gordon Brown match the offer, though, short term? Is it because they know it might get called in soon and theyd have to pay out?

    If Lloyds dont take HBOS, does that mean we get another nationalised bank to merge with Northern Rock?

  • Comment number 11.

    There is obviously something wrong with HBOS, and the bank is not as "strong" as many - from the Sub-prime minister and Darling downwards - have tried to convince us. It would appear those wicked hedge funds (or Brown's scapegoats) shorting the stock were correct.

  • Comment number 12.

    Hope the deal goes through, even with government cash backing.

    But if it fails this will be the first teat to see whether government have the cash to pay depositors.

  • Comment number 13.

    Dear Robert
    Gordon Brown was correct to blame Wall Street for the financial world crisis.
    However this event is a classic replay of the Economic War fare that created the Great Depression.This was calculated and inplimented over a long period of time, it is a mirror image of financial wrangling of the 1920s, THEN it was Montague Norman, of Thread Needle street, Now its Wall Street, and if you read the implications discussed in the Books on the financial dealings of Wall Street and the Bank Of England you will see this parallels those events , to clinch it, Secrets of the Federal Reserve back up this claim THAT Bankers and Financiers purposely creat this event , including the lesser events like Black Friday exc, to have a run on shares and the stock markets to make more profit.

  • Comment number 14.

    "Now, there's a 50 per cent to 60 per cent overlap between the shareholders of the two banks.

    And if those shareholders were being rational, they would vote for it - because they are simply exchanging one load of paper, their HBOS shares, for another load, Lloyds TSB shares, and the terms of the exchange should be irrelevant to them."

    Surely this would depend on the sizes of the respective holdings? If one held a large tranche of HBOS and comparatively few LTSB, wouldn't it be to ones advantage for there to be a high valuation of HBOS shares in terms of LTSB shares? Conversely, if ones holding was predominantly LTSB wouldn't one hope for a low valuation of the HBOS shares?

  • Comment number 15.

    What about the 'Efficent markets Hypothesis' ?

    also what do you get if you merge one big insolvent bank with a slightly solvent one ?

    answer one giant fairly insolvent bank... thats what you get with a haliloyds. why would it be 'insane' for rational risk neutral investors not to want shares in an insolvent bank?

    Oh and while im at it on the news at 10 last night overnight US DOLLAR LIBOR is 6.88% NOT STERLING LIBOR... its the national news! get it right!

  • Comment number 16.

    What happened to the catastrophe of Yesterday Robert?, you should be sacked for making up stories like that, Shares rising this morning-no mention of this from the prince of doom and gloom-truly you can have no credibility now.

  • Comment number 17.

    I could not make sense of this yesterday, but today I bought some HBOS shares. So either Robert is right and I make some money. Or he is wrong, the deal collapses and Gordon Brown is out on his ear.

    Either way, I win.

  • Comment number 18.

    Preston, your confidence is amusing, given how only a few days you and everyone else were so confidant that the US congress would approve the 700 billion dollar bail out... and look how that turned out.

  • Comment number 19.

    "And if those shareholders were being rational, they would vote for it - because they are simply exchanging one load of paper, their HBOS shares, for another load, Lloyds TSB shares, and the terms of the exchange should be irrelevant to them."

    What a strange statement. The number of Lloyds shares received for each HBOS share is surely relevant? It sets the relative valuation of the two companies in the deal. Only if you own exactly the same proportion of the two companies at the time of the deal does this become irrelevant (since you will receive the same proportion of the newly issued shares, and hence continue to have the same proportion of the merged entity). Anything else means the ratio of shares in the exchange matters. Whether the current exchange ratio favours the one or the other is another question.

  • Comment number 20.

    Hi Robert,

    Nice piece of analysis to the crazy and mad situation of rumour monger 'major investor' opinion circle. Some of the so-quoted 'major investors' just either short the banks down to bust up or if short banned just trying to talk down the banks and the HBOS/LLoyds TSB merger deal. One piece of news reported by Scottish media which cannot be found in any other London based news outlet including BBC is that some Scotland's politicians are not happy with the merger that will take a very important Scotish banking institution away, are actually encouraging UK financiers to contact Middle East state equity fund groups to launch an alternative bid which will give a much higher valuation of HBOS share than the LLoyds' £232 valuation. If this is a decent approach and another good option, does the government allow a bidding war to happen as the deal brokered by the PM personally?

  • Comment number 21.

    That "major investor", saying that the markets are always right, is confusing them with Kipling's Gods of the Copybook Headings.

    Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew:
    And the hearts of the meanest were humbled and began to believe it was true:
    That All is not Gold that Glitters, and Two and Two make Four -
    And the Gods of the Copybook Headings limped up to explain it once more.

    It's old, it's corny, and it's been running through my head whenever I look at the news recently.

  • Comment number 22.

    I was in my local branch of HBOS yesterday to deposit a few cheques. I got some extra cash out for emergencies.

    It was a bit depressed looking. I think it has mortgage book problems, or as some of our wonderful people call it overvalued assets. My wee dog thinks they are liabilities, so he tells me. He knows more about it than a banker or a politician.


  • Comment number 23.

    Netsuper- The Great Leader did NOT broker the deal - HBOS and Lloyds had been talking off and on for months (see Sunday Times 21 September). All that GB did was to confirm that he would over-ride the competition authorities to enable this deal to go through.

    GB was delighted to accept the praise for "brokering" this deal in the euphoria that followed its announcement - but if it falls over you will amazed to discover that he had nothing to do with it at all - in fact he was probably against it all along!

  • Comment number 24.

    On HBOS's Value - A way forward

    HBOS shares stand at about 128p, but are they worth any more than the B and B shares were? My guess is no, without the prospect of a LloydsTSB rescue.

    Today's Lloyds shares are about 236. offering HBOS shares at 0.833 of a Lloyds share for each HBOS or valuing, at today's price for Lloyds, HBOS at 196p so the offer for HBOS has improved by 67 p per share at today's prices HBOS shreholders should only get 0.542 shares of Lloyds TSB.

    My suggestion is that the relative market values of LloydsTSB and HBOS should be or indeed are in the offer document to reflect the reality of the offer. I know that this would be unusual, but in these times HBOS shreholders are and will be lucky to get anything at all.

    It cannot make sense to put an unacceptable burden on the shreholders of LloydsTSB when they have been generous enough to have their arm twisted to take HBOS into protective custody. If anything else is tried I will predict the LloydsTSB shareholders will vote against the takeover.

  • Comment number 25.

    Now that it has been officially denied that there will be a renegotiation it must be true that it will be renegotaited.

    A simple look at the share price differentail shows us that one or other of two things are going to happen.

    Firstly the Lloyds TSB shareholders will reject the merger at the current price or secondly that there will be a renegotiation.

    I'm convinced that Lloyds TSB will gazunder HBOS. They will simply state to the HBOS board and HM Government that the market has fundamentally changed and either it is renegotiated or it falls apart.

    To put it simple I expect somewhere about 0.6 to 0.65% Lloyds TSB hares per HBOS share.

    "Deal or no deal!"

  • Comment number 26.

    Sounds like you're being kept in the dark Robert. Perhaps you're too much of a liability to be given under the table information any more.

    "In spite of the noise from a few recalcitrant shareholders, it's not obvious that the majority won't be secured."

    Neither is it obvious that it will. HBOS is shot. Seriously. What benefit would Lloyds shareholders see in absorbing a company that is much bigger than itself and has got into difficulty because it wanted to maintain it's market share of mortgages. A market share of assets that are rapidly losing their value. And perhaps worse, the Lloyds management have made strange cooing noises to the Government about keeping first time buyers sweet. That alone is off putting.

    Why would HBOS shareholders vote for it as well? According to the FSA, Treasury and the HBOS management they are adequately capitalised and had a sustainable business model. Yet this deal had been on the table for 6 weeks or more. Shareholders don't like being taken for mugs.

  • Comment number 27.

    Well if you are correct and there really are Merger arbitrage oportunities here we wouldn't know since the FSA has essentially killed all hope of merger arbitrage and hence and efficent market in this respect in this takeover by the short selling ban...

  • Comment number 28.

    Robert, 'The Market' IS always right.

    By that, we take The Market to be whatever the real price and the price action of any instrument has been doing, and is, currently doing. No two ways about it. That really is The Market.

    If by 'The Market' you mean the talking heads that attempt to rationalise, normally post hoc, why prices do what they do and why they might do in the short term future, I agree, they rarely get it right. Their occasionally and randomly accidental correct prognostications clearly and fully remembered while the many hundreds they got wrong, are conveniently forgotten.

    As in this case - the HBOS TSB deal will NOT go through. Not even under new terms and even with regulations being amended, quite ludicrously, to allow such a takeover to occur in the first place.

    Brown will sidestep the resultant fallout as he always does, and is what we have all come to expect of our politicos.

  • Comment number 29.

    They might have outlawed the short selling
    but they have yet too identify the outlaws because they are still trying to make money out of a HBOS demise.Constant downward pressure on the share price creates oppurtunities for the vultures and scavengers in the market place who will profit should the deal be regenotiated at a lower price.There are al ot of jobs going down the pan in the banking industry and it looks like the main cause of the trouble are these market manipulators and gamblers on the floor of the stock exchange.

  • Comment number 30.

    I disagree about the markets. The markets foretold this starting in March 2007. Look at the chart for the FTSE350 Banks. A good company or industry cannot usually be brought down by short sellers only one with things to hide. (But they can easily be blamed)

    As always the authorities will (and have) acted far too late. And I agree totally with the earlier poster. Combining a large sick company with a slightly less sick company does not bode well for the future.

  • Comment number 31.

    "I feel a burning desire to find out whether this "major" investor is by chance looking after my pension, because if so I might as well top myself."

    What makes you think that your pension is still worth something?

    Down the line form this chaos there will be more chaos to deal with in "What happened to our pensions".

    Perhaps we can have a bailout from the taxpayer just like the bankers are demanding

  • Comment number 32.

    As a LTSB shareholder I would not back this deal at any price higher than 0.01p per HBOS share.

    Thats apperently the price HSBC were prepared to offer and they are the one bank that seems to get things right.

    Your comments about the politics are irrelevant to most shareholders who will vote on purely economic grounds.

    The situation could allow LTSB to change the price but "bankers honour" would not allow that, therefore as things stand it will get voted down by LTSB shareholders.

  • Comment number 33.

    "In that period, the market has been comprehensively, systematically wrong about almost everything. But don't get me started."

    Isn't it wonderful how short are the memories of financial 'journalists'. Now you're attempting to take the moral high ground? Really, this is too much.

    With your new found celebrity status your presence on the sound-bite show is at maximum demand. How about growing a spine and actually living up to your job description of Public Service Broadcaster instead of the dumbed down platitudes you have been wading in recently? Since the 'money' in the system doesn't really exist then debating the nuances of this regulation here or that greedy policy there is a complete waste of time.

    The elephant in the room is Fractional Reserve Banking combined with a debt-based monetary system. The system is mathematically flawed with an inbuilt self destruct mechanism. It is a pyramid selling scheme of immense proportions.

    To act surprised that it is coming to an end is simply to be ignorant of where money comes from and how it circulates.

    Come on Robert, take the opportunity that has been handed to you on a plate and do something so your grandchildren can be proud of you. Start the ball rolling.

  • Comment number 34.

    I strongly suspect that the difference in price between the offer and yesterday's market price is the perceived cost of the meddling by the Scottish Mafia with their politically desirable but financially unsound and unreasonable demands on Lloyds TSB !! Someone has to pay for cleaning up the mess in Scotland; whether with jobs lost or in a fall in the value of the company purchased !!

    THe parallel is starkly illustrated in another bit of news where Alitalia unions refused to sanction job cuts proposed by Air France despite them offering a good deal. So they pulled out and now the company is valued as useless and it will collapse with *ALL* jobs lost unless they accept a much lower valuation of the company.

    Much had been said about Thatcherism but it was SHE that broke the malignant power of the British Unions !! Otherwise, we will see the same thing happening here and Britain will revert to the Stone Age !! As it is, the Scots are doing a good job of it with HBOS !!

    #20 - Those Scottish politicians are betting on a busted flush !! They are trying to threaten Lloyds with a foam-rubber truncheon !! No one else with take on this poisoned chalice for anything more than a free gift !! And then they WILL shift the HQ of that company to where they come from - Dubai, Abu Dhabi, etc. - with the resultant loss of jobs anyway. Besides, Scottish-accented Arabic will sent the camels stampeding to the four winds !!

  • Comment number 35.

    "The deal has been agreed by both boards.

    It's being backed with legislative help by the government.

    The prime minister has staked his career on this rescue takeover.

    It's going to happen."

    Dream on sunshine.. - I for one will be voting against this - why should we be the one to help HBOS, currently on crutches, limp through the next 6-7 years while its bones mend ?

    What is the point of being a sensible stable [excuse the pun..] benk if one gets saddled up with a no-hoper like HBOS ? Call me, call me irresponsible, but I will not be signing up to this deal at this price.

    And I'm not the only one ! And the bank needs 75% approval for the deal to go through - a high bar, and I wouldn't be getting those 'free pound notes' just yet...

    The 'wisdom of crowds' often trumps the view of experts, and the dive in the share price at HBOS is a siren song to Lloyds that this deal is a stitch-up that we do at least have the opportunity to veto, before the contagion infects our shares as well..

    You have been warned...

  • Comment number 36.

    do you remeber a king ? what was his name.. arh yes thats the one, Canute I believe his name was... you see he thought he could command the seas just as Gordon and the Pestowire can control the markets.... sad really.

  • Comment number 37.

    I have found the reporting on the credit crunch rather damaging! I had to endure Robert Peston's reporting which fuelled a run on Northern Rock which brought about the demise of a North East success story.
    The reports on BBC yesterday kept saying how the situation in the US was causing a slide in the European Stock Markets only to see them up for most of the day.
    What is the matter with the BBC? Is the situation not bad enough as it is without scaremongering the public even more?

  • Comment number 38.

    A slight aside, but you mention (I assume in your case BBC) pensions. A major issue arising from the recent debacle, but yet to be fully recognised is that state sector employees pensions are safe. Private sector, mainly money purchase schemes, will have been badly damaged and given the long term implications of the current crisis will take many years to recover.

    We face in the not too distant future, a rich formerly state employed group of pensioners, subsidised by a poor formerly private sector employed group. After all, current state sector pensions are paid from current taxes.

    A recipe for social division, making todays divide between rich and poor seem like a golden age.

  • Comment number 39.

    Robert, please do not try to kid us; surely we are better than that. Unless the percentage shareholdings are identical in each institution, the terms of the exchange are paramount. Individual shareholders will have made decisions to expose themselves to differen risks - indeed some may be legacy shareholders in the four original institutions, who have been unable to do anuything about their holdings for one reason or another. Suppose a major institution has shares in one bank but not the other. The terms of the 'merger' will dictate entirely what level of control this investor will have over the merged institution.

    Personally, I believe that there will be enough Lloyds shareholders who disagree with this to reject this merger on these terms. The quote was a clear warning (i.e. that at least on this, the market has correctly read shareholder sentiment), despite the perceived inaccuracy of his other statements. And once the terms get reset, its a race to the bottom for HBOS shares.

  • Comment number 40.

    #21 - I think a more appropriate quote from Lloyds for the Scottish Mafia would be -

    'Twas only by favour of mine," quoth he, " ye rode so long alive:
    "There was not a rock for twenty mile, there was not a clump of tree,
    "But covered a man of my own men with his rifle cocked on his knee.
    "If I had raised my bridle-hand, as I have held it low,
    "The little jackals that flee so fast were feasting all in a row.
    "If I had bowed my head on my breast, as I have held it high,
    "The kite that whistles above us now were gorged till she could not fly."

    - Ballad of East and West

    So appropriate for the bloated and poisoned carcass of HBOS !!

  • Comment number 41.

    #28 - Shakespere got it the other way round -

    The evil that men do lives on after them. The good is oft interred with their bones.

  • Comment number 42.

    Hi Robert,

    Nothing is a dead cert. If I was a Lloyds TSB shareholder, I would be spewing. My company which has generally been well run and conservatively managed, thus underperforming the market (for good reason it would appear now) is taking on board the toxic waste of a company which was too greedy and too loose with not only it's depositors funds but also it's shareholders. Even at it's current depressed price HBOS is still not a good deal. (And for the record, I have my mortgage and savings at HBOS so there can be no conflict of interests here!)

    I would vote it down - couldn't care less what the ramifications of a No vote were.

    Then Lloyds TSB could pick up the juicy pieces of the company at pennies in the pound! Sounds like a much better idea.

  • Comment number 43.

    You're right Robert, unless you can buy your groceries in the market then the market itself is worth less than nothing.

    Times have changed and people remain in denial.

    I think futures in the market itself are a sell.

    Time to sack the lot!

  • Comment number 44.

    The massive wages that these people earn, including the great reputations our political leaders are bestowed, these are all facades.

    We now see our business leaders have as little a clue about what is happening in their business fundamentals as the rest of us 'man on the street' people.

    They are not worth their packages and as can be seen by their current predicament, they are not about looking after shareholder interests either.

    As for our political leaders it is so worrying to see them running around like headless chickens bouncing from pillar to post almost as much as their rational arguments are knocked from incredible to farce.

    Who on Earth anymore believes that Bush has a clue, that Paulson knows anything about high finance or is any shadow of an intelectual professional. As for Brown, his reputation has corroded to dust as he too demonstrates he has no idea what is happening, how it happened, or what to do to resolve it.

    The old Football club chairman quote of having full confidence in his manager being the arbinger of the sack has now been replaced by banking infrastructure chairmen claiming their organisation has no 'liquidity' issues and is fully funded. It appears nationalisation is only days away.

    For the board of Lloyds TSB why does buying something over book value make sense to your employers, your shareholders, and additionally how on Earth can merging a stuggling bank with one that is bankrupt going to do anything but make the struggling bank, struggle all the more. Bad bank A merging with Bad Bank B does not make perfectly sound Bank C.

  • Comment number 45.

    I don't know if anyone else agrees, but I'm getting a bit bored with following the smallest detail of each distaster that happens. I'd like to see some analysis of the potential longer term economic consequences of this. What will happen with credit in the long term? Where will all the chinese, oil and sovereign fund savings go? What will happen if the dollar collapses?

    Why does the BBC not have an economics blog any more? Who replaced Evan Davies?

  • Comment number 46.

    Good morning.

    I look to the future.

    Even after these universal mammoth bailouts how are the banks or institutions intending to equate their lending strategies when house/property prices are simply just not going to increase?

    Only encouraged inflation is going to enable buyers to enter the property abiss.

    For my part I would have offered instant mortgage settlement discounts to mortgagees and let them find resources to settle.

    Banks have to be taught a lesson.

  • Comment number 47.

    Was there not a caveat in the dumb - aren't they always - FSA regulations, that allowed registered principals to maintain short positions.

    If that is the case then market makers in HBOS and LloydsTSB are creaming it to an obscene level, since teh cost of finance is not 45p per share on a done deal!!

    Perhaps given their special position as folk still able to sell short, shareholders should start a class action against either them or the FSA for market abuse.

  • Comment number 48.

    They'd have to be mad to buy into this with this price difference. As for there being no doubt about the deal going through Robert, well, let's wait and see. If it does go through expect it to be on the back of some pretty hot behind the scenes renegotiation of the deal. While Gordonbennet may blabber about this let's not forget money talks and that's the language that investors understand.

  • Comment number 49.

    I was in the process of switching my business bank account to Bank of Scotland. I'm seriously reconsidering this now.

    As I see it, 2 things can happen:

    1. The deal doesn't go through, an HBOS collapses. I'll then have my money in a non-existent bank, which would not be good.

    2. The deal does go through, and the splendid interest rates that BOS pay on credit balances will be brought in line with the piffling rates that Lloyds pay, and they'll adopt "big 4 banks" standards of customer service (ie dreadful) and I'll wish I hadn't switched.

    Am I missing anything?

  • Comment number 50.

    If you really think buying £10 notes for £6.60 is a good idea, stop writing blog entries and fill your boots with them.

    Personally, I believe the markets more than I believe a journalist. Something's going on, and no doubt you will write another blog entry "explaining" it, after it's happened.

    I accept that all financial journalists have a big problem. They can't spend every day endlessly repeating "Prices in ABC Corp rose X percent because there were more buyers than sellers". But that's the ONLY thing that moves prices. The few people who know that, and ignore the rest of the noise, are the few people who consistently make money from the markets.

  • Comment number 51.


    I agree. The merger MUST and WILL go ahead. The market is playing games with HBOS shares but the deal will create immense value for Lloyds. If I was Lloyds Treasuer I would purchase a few million HBOS shares at 130p or so as this represents a value gain in terms of earnings per share for Lloyds (rather than exchange it for Lloyds shares at 188p in due course). Also, Lloyds Sir Victor Blank and Eric Daniels are on the line and should spell out what cost savings and other benefits they expect from the deal - that would help close the gap.


  • Comment number 52.

    #34 - If the difference between offer and market was the cost of the deal to LTSB, surely the offer price should be below the market price? As it is, the market price is weel below offer price, implying that the market believes that the merger will not go ahead on current terms. Indeed, it could be suggested that the market does not want the merger to go ahead.

  • Comment number 53.


    I want to see bankers jumping out of windows on live television and politicians and pundits getting into fist fights live on air and traders on the floor of the stock exchange going ape with guns....

    I was promised carnage! Where is it???

    C'mon Congress, Please vote NO again. Kill off the banking scum that create fiat, worthless money out of thin air, then charge interest on it, and then foreclose before completion taking solid tangible assets of hard working families, leaving the said families homeless.


  • Comment number 54.

    Robert, congtaulations on being so ahead of the game on the question crying out for a perceptive response for a couple of days now i.e. what about HBOS? But it leaves one wondering, not actually about the nationalisation scenario, which may be unthinkable, or the soundness of the takeover as such, but about the likelihood of some degree of run on HBOS and whether there now exists a time window for such a thing to occur in. Yo-yoing share-price, a de-mutualised business plan, perceptions still negative about the takeover, interest paid a good percentage point below some others, and now the politically salient issue of foot-dragging over deposit guarantees. None of this is rosy for them surely.

  • Comment number 55.

    The idea of Lloyds shareholders agreeing to deal simply because they are HBOS shareholders and therefore swapping one bit of paper for another is hard to understand.

    A shareholder who holds both Lloyds and HBOS shares would not vote for this merger if they believe that the total value of their holding would be increased through letting HBOS go bust.

    If the shareprice of Lloyds fell due to the merger and taking on of HBOS debt the total value of shareholding even after receiving 0.833 Hbos shares for each Lloyds share may be less than the shareholding would have been worth if the shareholder had voted against the merger taken a loss on his HBOS shares but seen a subsequent rise in the value of his remaining Lloyds shares due to not taking on the enormous HBOS debt

  • Comment number 56.

    I find this "HBOS must be saved at all costs" attitude completely bizarre.

    Here we have the opportunity to kill off a bank that other than providing a lot of direct jobs has actually been of little real benefit to Scotland.

    The poor performance of both the main Scottish banks is reflected in Scotland's lower rate of growth, it's pathetically low company birth rate and the falling number of quoted Scottish companies.

    Scotland desparately needs a regional bank that thinks and operates in a far more regional manner. The Kiwi bank is one good model and the Norwegian banks are another. The latter in particular have been hugely supportive of growing Norwegian industry and the evidence of this can be seen by taking a quick trip around Aberdeen where most of the high tech, high value adding and specialist oil/gas engineering companies are now either Norwegian or American.

    In contrast HBOS and RBS have of course been mainly involved in pushing up NE Scottish house prices!

  • Comment number 57.

    Great anti Gordon Brown rant - Not...

    The fact that a LTSB+HBOS merger (that is taking over the whole operation without having to sell off say the mortgage operation) would never happen unless competition law was suspended (only for this merger AIUI) means that Brown DID broker the deal, it could not happen otherwise.

  • Comment number 58.


    Your supportive stance and denial of the market wouldn't have anything to do with paying someone back for any scoops you may have had recently would it?

    LLoyds will buy HBOS if they can make more money out of it than just expanding organically into the hole that the loss of HBOS would leave.

    Where will the 'more money' come from? There is only one place it can come from - the customers...

    All these foreigners buying up British assets just when there has been disquiet about the motivation of 'soverign wealth funds'...

    Brown is drowing, and will drag the whole country down with him if he can -- you really shouldn't be encouraging people to dive in to try to save him, he is already lost and they will just drown alongside him.

  • Comment number 59.

    The deal will go through because to nationalise HBOS would be very politically damaging in scotland where there is an effective opposition - the SNP - unlike Northern England where many folks doggedly vote labour whatever they do to them - coming from the NE I know to vote labour is inbred and takes some convincing not to do - it's taken me 30 years to see the light!.

    Hence NR and BB are destroyed together with jobs and the value of the shares of 1m shareholders, who of course are also responsible taxpayers who have tried to save and invest, whereas everything possible will be done to avoid a scottish bank's destruction.

    Blank will also try to help his Labour friends - I imagine he has had many cosy dinner parties with the Labour elite from his time as chairman of Trinity Mirror as Piers Morgan's autobiography indicates.

  • Comment number 60.

    Its quite clear that the people selling cannot have a rational or legitimate reason to sell now for less than the offer price.
    But apparently as one says above "the wisdom of crowds.. trumps the view of experts", even the one saying "he is not the messia he's a very naughty boy"!

    So we are left with people selling who do not own shares in both halves and who are deliberately trying to unload at less than the amount they will make if they hold on. Now why would anyone honestly want to do that?

  • Comment number 61.

    Brown's confidence that the deal will go through is infuriating to me as a shareholder of Lloyds. Unless he is prepared to buy out my share, ie to nationalionalise Lloyds, it is nought to do with him. I consider that this deal is a disaster for Lloyds in the short term and in the long term we are all dead, as Keynes said. I shall vote against the deal at the present price. I hope that a majority of shareholders will do likewise.


  • Comment number 62.

    "And if those shareholders were being rational, they would vote for it - because they are simply exchanging one load of paper, their HBOS shares, for another load, Lloyds TSB shares, and the terms of the exchange should be irrelevant to them."

    In response to those commenting on the above, the common shareholder base will probably own the shares in roughly equal proportions, just because big investment managers (and FTSE100 trackers who have huge sums invested) spread their portfolio like this. They each go a bit 'overweight' or 'underweight' in any one share at any time, but not normally to the exclusion of the other.

    LTSB and HBOS will have worked this all through from looking at their share registers before suggesting the bid price. They know the proportions held and will be confident that they'll get agreement from the necessary number of shares.

  • Comment number 63.

    Does Robert have a bad day if everything goes well for the financial markets?

    What's with the BBC relishing in gloom? Are their jobs safer than everyone elses?

    The fact is, with all the uncertainty and bad news so helpfully and happily pointed out- the stockmarkets aren't going any lower.

    We could have reached the bottom. And that's good news. But don't expect to hear it here.

  • Comment number 64.

    I find the term "simple 50% majority" a bit confusing, if not a bit shifty. Do you mean "a simple majority", "a mere 50% of the votes cast", or that the vote must be passed by a "thumping 75% - 25% margin"?

  • Comment number 65.


    re Trade Unions

    But who is it that has caused these UK companies to get into difficulties, as you say the unions have been neutered so it CAN'T have been the them, perhaps if they had not been so brutally castrated the flip side would have had a hearing too and this mess might have been avoided - pure personal greed breeds just more greed, in the same way that some (male) animals will fight to the death to get the reward of procreation.

  • Comment number 66.

    I thought that every company's directors had a fiduciary duty to act on behalf of the shareholders.

    I would imagine that LTSB directors know this and are therefore firmly of the belief that the purchase of HBOS at the current rate set is beneficial to the LTSB shareholders.

    If this proves not to be the case then is there a chance of bringing action against those LTSB directors personally?

    What fun we could have!!!

  • Comment number 67.

    There is a pragmatic aspect, though: Lloyds has survived thus far by NOT being adventurous, which is exactly what made it such a prime target earlier on. Taking on HBOS, with that oxymoron Intelligent Finance online bank, its overseas exposures and above all else its chaotic accounting is like giving ragwort to a black horse - it becomes a matter of time until it too succumbs.

  • Comment number 68.

    Another excellent analysis.

    On a different tack, could someone please tell me what Mervyn King and the Bank of England are doing to help the markets? Or are they still pre-occupied with moral hazards?

    News from the Bank of England today:
    (1) The auctions of US$ funds were undersubscribed, not because the banks no longer need funds - they do - but because the banks have run out of the collateral needed to meet the BoE's very stringent criteria.
    (2) The BoE increased the target ranges for remunerated reserves from around +/-40% to +/-60%. In other words, they are encouring cash rich banks to place their surplus funds with the BoE rather than lending to other banks.

    None of this is going to help get funds flowing again in the financial markets.

  • Comment number 69.

    Reading these Peston's blogs I'm not sure who is the bankers, investors, Carpet-baggers and general crook-traders public enemy number one, Gordon brown or Robert Peston, as they seem to hate both in equal measure!

  • Comment number 70.

    The market price of HBOS suggests Institutional shareholders in Lloyds are putting pressure on the board to renegotiate the terms of this deal(and who can blame them?). The market doesn't have an opinion and neither is it right or wrong it is simply a poll of investors and speculators current views. If you think HBOS is undervalued then buy some shares and make yourself some easy money. I'll let you have this one to yourself.

  • Comment number 71.

    Insane markets ? No.
    Insane takeover ? Yes.

    The key terms here are Solvency and Liquidity.
    Are HBOS Solvent yes or no ?

    If solvent then the issue is simply one of liquidity.
    Brown needs to get the finger out like Cowen did and guarantee the main UK banks.
    It is NOT a bailout - it is simply underwriting them.

    I do not believe that any of the major UK banks are insolvent - that is absurd !
    Yet there is a liquidity crisis stemming from a lack of confidence.
    Yet where are the UK government ?!?!?

  • Comment number 72.

    I´ve read this blog several times and I´m still struggling to understand the point.

    I guess it comes from an off the record briefing, and all it seems to convey to me is growing panic.

    There is some implied hint that maybe the price can still be on the table, but only if we understand that everyone will sign on to any new price.

    Sadly there is no understanding as to how rational people reach decisions. Just because you own shares in both companies obviously doesn´t mean that you would vote for this deal.

    There is still no recognition that the mortgage book is so toxic that it could well drag down the appointed saviour.

    The only way Lloyds shareholders will vote for this (probably at any price) is if they have some penchant for financial suicide.

    Left to their own devices markets are working just fine, it´s just that people don´t like the answers that the markets are providing.

    Therefore they try and interfere with the market to get it provide an answer that they like, this makes markets do strange things and then the interferers justify their interference on the basis of the strange behaviour of the markets. Such is the mechanism for introducing madness into the system.

    Adverse markets are enough of a problem. Thanks to politicians we will get adverse markets infused with madness.

  • Comment number 73.

    Brown is following the US piecemeal model of saying "we'll save this bank but not that one" / we'll intervene here but not there.

    This modus of intervention does NOT work.

    Speculators will simply move on and target the next bank.
    The contagion will spread.

  • Comment number 74.

    #60. The answer is because those people believe that the merger will not go ahead, and once that happens, HBOS is in another Northern Rock or B and B situation. It is better to sell out now than to risk the problems of the merger not going ahead. And that's the point.

  • Comment number 75.

    Indeed, has anyone considered this as a potential strategy to acquire Lloyds TSB shares on the cheap? Indeed, it could be a very sensible strategy for existing Lloyds TSB to acquire bigger holdings on the cheap.

  • Comment number 76.


    a HBOS share price on 131.5 and a Lloyds TSB share price of 242.5 as at 11.40 gives a ratio of 0.54 HBOS shares to 1 Lloyds TSB.

    Either a renegotiation or it all falls apart.

    I think HBOS and Gordon Brown will have to take whatever offer they can get.

  • Comment number 77.

    Who said it could never have been foreseen?

    John Gubert, former Global Head of HSBC Securities Services, has turned author with the recent publication of "One Step To Danger" (Troubador Publishing). The financial thriller was initially rejected by several publishers and agents as "too far fetched" despite the quite prescient claim of the author that "one day may prove to be closer to the fiction of this thriller than many would believe."

    The main character's description of the slump in share prices, after market manipulation by money managers and especially himself, echoes eerily this week's events:

    "It was then sheer and unadulterated panic. And that panic fed panic in Wall Street. The market opened. The market slumped. It was a blood bath. There were rumours of major broker defaults. One bank had called to see the Federal Reserve. There were rumours that it was in trouble.......I looked at the news and saw the President was holding a press conference....."

  • Comment number 78.

    Post 60, people do have a very rational reason to sell below the offer price as it is only an offer at present.

    Until the offer is accepted by both sets of shareholders it isn't finalised.

    The discount is based upon people's rational expectation that the offer will either be amended downwards or might be rejected.

    In either case the HBOS price may well go lower.

  • Comment number 79.

    HBOS is at 140p today (and i piled in at 133p). Lloyds is up as well (and im long in that as well). Very soon someone fairly smart in the City or the Press is going to do some fundamental analysis which would suggest that both stocks are massively undervalued. HBOS is trading at around 1.5 times last year's profits, for example. When all those cheap buy to let deals Birmingham Midshires wrote in the last two years expires and they jack up interest rates they will be quids in - by that stage it will probably be close to impossible to transfer buy to let mortgages.

  • Comment number 80.


    The SNP seem far more left of centre than Nu-Labour is, what makes you think that they would not welcome - or want - a nationalised Scottish bank, one that could (should Scotland decide on Independence) be transfered to the control of any future Scottish executive?

    The problem with any bank (as in traditional bank, not a de-mutulised building society) nationalisation is that it's been one of the demands of the far left for years - look at the policies of the Socialist Labour Party - so for Brown to nationalise any bank, besides the financial issues, he will be worried about being see to be lurching to the far left.

  • Comment number 81.

    > I feel a burning desire to find out whether this
    > "major" investor is by chance looking after my
    > pension, because if so I might as well top myself.

    For a few years, the yuppies got their hands
    on the levers, and this is the result. For a while
    there, they even had me believing their BS ...
    you know, all that nonsense about a new business
    paradigm, where you have to pay execs 10's of
    millions just to get out of the bed in the morning.

    Well, now we'll see how they like it on “plumbers
    wages” (as one of them called it a few months
    back...) because we're going to vote at the
    AGMs to cap their wages viciously and
    put them on a long term rolling average until hell
    freezes over. That way, they can't afford to screw
    up again.

    Oh, and give the plumbers a rise. At least they
    do something helpful that requires more skill
    than just counting money.

  • Comment number 82.

    Hallifax looks as though it is carrying its own X [cross] for real now with X tra X tra ones for each of its shareholders

    I warned one of their mortgage managers two years ago that a huge increase in libor would come from a colapse in the supply of funds and that they would not be able to sustain their tracker mortgage book [and low fixed interest credit card deals]

    Nevertheless they are liked by their solvent customers many who will soon need to reamortize . HBOS will in future make money for their new owners and should in fact be taking over LLOYDS

  • Comment number 83.

    Dr Blockbuster says it's about time HBOS got their "come uppance". I was one of thousands that deserted the ship after 30 YEARS as a customer. As an employee told me straight on the telephone ... "I'm sorry but you know that length of service as a customer means nothing these days."

    Grrrrrrrrrr !

    Whilst waiting at traffic lights outside a branch of HBOS in August, I noticed a sign portraying another step up in customer service: "From September this branch will be CLOSED on Tuesdays".

    Am I to presume that from October, this will also mean on Mondays, Wednesdays, Thursdays and Fridays ? :wink:

    Look to ye customers!

  • Comment number 84.

    HBOS is dead in the water and sinking. The plan brokered by Jonah Brown is that Lloyds should tie itself to HBOS.

    Question: What then happens to both?

    RBS is listing and taking on water. What will Jonah come up with when it soon stops and starts to emulate HBOS?

  • Comment number 85.

    If the banks will not lend directly to each other, then why cannot the central banks e.g. the BofE act as an intermediary buffering mechanism for the wholesale 'cloud'.

    Thus providing some liquidity to the system without the risk of counterparties defaultling.

    After all, we can hardly let 'this sucker go down'.

  • Comment number 86.

    Slightly off topic... but hey so are lots of other contributors!

    Once upon a time the markets were driven by economic news... Manufacturing and Service sector news today has no effect.

    It's a casino out there!

    ...and BBC reporter Tim Wilcox is standing outside the Exchange with nothing very interesting to talk about... unless the conclusion is that all the issues are now behind us... if so maybe he'll get a job on CNBC next discussing buying value stocks at the bottom. ;)

    Also... let's have some more reporting on the money markets... it's just been quarter end so you would expect lending to have been tight... what's happened now it's the start of Q4...

  • Comment number 87.

    My, that's a remarkably confident prediction. Gordon Brown may have staked is reputation on it (although I'd be more impressed if he'd staked a fiver on it), but it's not actually up to him: it's up to the Lloyds TSB shareholders. They do get to vote on this, and I don't see how you can claim to know with such certainty which way they are going to vote.

    You can make an educated guess that they'll approve the deal, but there is no way you can know for sure.

  • Comment number 88.

    I declare an interest - I am a Lloyds Sharholder, and an investment professional who thinks this is an awful deal for LLoyds who are overpaying for a bank with a poor balance sheet and lots of pain to come from its comercial lending and intergrated fiance operations.

    However the main reason to post is this the blog is wrong and I think Robert needs to check his facts:

    The proposal will be inplemented by a scheme of arrangement. This requires 75% by value (not a simple majority), and 50% by number of each class of shareholders to pass and subsequent court apporoval when minority shareholders who are not HBOS holder can also object. By number the majority of shareholders are individuals who may, seeing their shares decline, all vote against.

    Under the current terms I certainly will, and will vote against the relection of the board if they do not walk away. Sir Vicotr may dream of Lord Victor, but not with my hard earned savings.

  • Comment number 89.

    Re: #55 "A shareholder who holds both Lloyds and HBOS shares would not vote for this merger if they believe that the total value of their holding would be increased through letting HBOS go bust."

    True, but who thinks that? OK, if you have a 99:1 ratio of Lloyds to HBOS, it's a chance for Lloyds to acquire distressed assets. But if you've a 5:1 ratio, collapse is probably not in your interest, because it destroys so much value, not to mention confidence.

    Of course, renegotiation is in your interests if you hold more Lloyds than HBOS. Doesn't HBOS have more small shareholders? I assume the institutions all hold proportionally more Lloyds and are interested in renegotiating the deal to the brink. But rationally it ought to go through, in the interests of the shareholders (even if HBOS is worthless).

  • Comment number 90.

    Watch this animated video and then decide if there isn't something totally rotten in the global banking system that needs serious reform:


    What's your take, Robert? Is it accurate?

  • Comment number 91.

    #45 crispblog

    Pual Mason's Newsnight economics blog touches on some of the longer term issues that you mention. However he does not dare discuss the only major issue of significance that NorrieC raised earlier on this blog #33. I guess it's a condition of his employemnt with a 'public' service body.

  • Comment number 92.

    #79 - So you're declaring you're long on both HBOS and LTSB, and saying that both are undervalued? Quelle surprise...

  • Comment number 93.

    "the normal investing rule is that if it looks too good to be true, then don't touch it even if you're in a radiation-proof suit."

    Nicely put! And good advice! Those who break the normal rules need to know what they are doing.

    Thanks for the reference to Kipling No 21. The final two verses are worth repeating:

    As it will be in the future, it was at the birth of Man
    There are only four things certain since Social Progress began.
    That the Dog returns to his Vomit and the Sow returns to her Mire,
    And the burnt Fool's bandaged finger goes wabbling back to the Fire;

    And that after this is accomplished, and the brave new world begins
    When all men are paid for existing and no man must pay for his sins,
    As surely as Water will wet us, as surely as Fire will bum,
    The Gods of the Copybook Headings with terror and slaughter return.

  • Comment number 94.

    LTSB must expect to pay a premium on the HBOS price - it's a quid pro quo for Gordon changing the competition laws to make the deal possible.

    LTSB has been trying to expand by acquisition for a long time now, and has now finally got the opportunity to make a really big grab with no questions asked.

    I'm keeping my LTSB shares, thanks very much. Might even buy some more in HBOS form as they're cheap . . . .

  • Comment number 95.

    Dear Robert

    Hbos / lloyds will not happen?

  • Comment number 96.

    Er.....has anyone else noticed that the HBOS share price is now fast approaching the 188p Lloyds TSB offer price?

  • Comment number 97.

    Clifford the First (#46) feared the ensuing consequences of all this crisis.
    I, too, am worried.
    My belief is that the years of easy credit and low interest rates have combined to accellerate the world consumption. With the consequent tightening of both, the world needs to pause - for quite a while - until the supply and demand is back in balance under more normal sircumstances. Consider how many purchases have been made months, if not years, in advance of when they could really be afforded. That is the period of time to allow this mess to unwind and the economies of the world - western world, mainly - to come back into balance and some form of normalcy return.
    all IMHO of course!

  • Comment number 98.

    #96 LTSB have not offered a 'price'; they have offered an exchange of securities at a ratio of 0.83 LTSB shares for every one HBOS share. Therefore the value of the deal floats accoring to the value of both the HBOS shares and the LTSB shares.

  • Comment number 99.

    Will all the same people on here be complaining about the shortfall Lloyds shareholders would feel if the price of HBOS shares goes aboe Lloyds?

  • Comment number 100.

    Re #94: the price Lloyds pay for HBOS must surely be a secondary concern for the UK Govt. The most significant quid pro quo that and sensible Govt could/should have extracted for the relaxation of competition laws would have been a clear 'understanding' about limitation of job cuts in the next 12-18 months. In all the press speculation regarding likely job losses folllowing the Lloyd/HBOS merger this likely quid pro quo does not seem to be mentioned.


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