Three myths need to be exploded about Lloyds TSB’s purchase of HBOS. The first is that it would be “consumer-friendly and pro-competitive”, as Lloyds TSB’s chief executive Eric Daniels claimed on Thursday. Even by the standards of corporate doublespeak, this was hogwash. The combination will have a 35 per cent share in current accounts, a 29 per cent share in mortgages and a quarter of the market in both savings and personal loans. Until this week’s turmoil, such a concentration of market power would have been inconceivable. A dangerous precedent for the government, but full marks to Mr Daniels for opportunistically exploiting its desperation.
The second myth is that the deal was negotiated on a purely commercial basis. The UK government could not attempt to dictate the actual terms of the share exchange, but it certainly left its fingerprints all over the small print. The enlarged group will continue to use The Mound as its Scottish headquarters, to hold its annual meeting in Scotland and to print Bank of Scotland bank notes. In addition, Mr Daniels has promised to do his best to keep as many Scottish jobs as possible. None of which, of course, has anything to do with the challenge to Labour from the Scottish National party or Chancellor Alistair Darling’s Edinburgh constituency.
The third myth is that Andy Hornby, HBOS’s “wunderkind” chief executive, has delivered terrific value for his shareholders. The deal values the bank at 0.6 times book value and five times 2008 earnings. This is hardly a bonanza. That said, many will be grateful to receive anything and will not hold Mr Hornby solely responsible. He only took over the reins in 2006 from Sir James Crosby, now, ironically, advising Mr Darling on how to rescue the mortgage market. Still, if the outgoing HBOS directors end up with outsized severance packages, there will be outrage – not least from the tens of thousands likely to lose their jobs.
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