HBOS Shareholders Row Could Cost Taxpayers £1.5 Billion Plus

In case you missed the memo, all of Scotland is apparently getting ready for one almighty shit fight about the Lloyd’s/HBOS merger. Now that it’s become apparent that almost all HBOS execs are being sent to the glue factory, and that the Scottish banking giant looks like losing tens of thousands of jobs, a pair of Scots heavyweights Sir Peter Burt and Sir George Mattewson are looking to coup the HBOS board (with the help of shareholders), block the merger and take over the bank.

From our end, we couldn’t give a damn about HBOS share holders. The main concern – far above Scottish pride and Edinburgh old boys jobs – is how much more money taxpayers would have to pour into this poorly managed, rubbish institution if the merger was blocked? Quite a lot it would seem.

The HBOS/Lloyds merger looks set to save the new banking group (to be called Lloyds Banking Group, just in case you weren’t sure who the daddy was here) £1.5 billion. So if the deal doesn’t go ahead, we can already expect that that saving will need to be raised somehow, probably from the government. Then there’s the further claim that HBOS’s bail out package (currently £11.5 billion) will have to be substantially increased if the merger with Lloyds is squashed, as HBOS on its own becomes much more vulnerable. So let’s just toss a couple more billion in the hat to cover that.

The idea that HBOS can stand alone is entirely premised on the state flinging more cash at it. Pre-bailout plans, no such idea would have ever been mooted. So should it be mooted now? No. Government bailouts are a last resort option, not an outrageously expensive way of helping out bank shareholders. If Sir Peter and Sir George can show taxpayers a private investor willing to help the ailing bank, all power to the old duo, but so far, as Robert Peston says, “…Burt and Mathewson have not raised a bean of new capital to inject into HBOS.”

In the Scottish Herald today, Jim Murphy, Scottish Secretary, says in relation to the merger: “Now banks are being stabilised it is for shareholders to decide.” Sure sure, but HBOS is far from stable. And decide what? Should any shareholders be allowed to make a decision that forces the treasury to hand over more money to banks? Surely it’s the government that should be dictating terms here?

And how much better would Sir Peter and Sir George be at managing this crisis? Given they haven’t even got off their arses to launch their new campaigning website – www.independenthbos.com – and that they worked with and trained a lot of the executives at RBS and HBOS who are to blame for the banks respective meltdowns, we think their claim for stewardship is questionable at best.

Posted by Jonty Rhodes in Hot Money | November 10, 2008 3:54PM |