Three weeks ago, I asked whether we still need the Lloyds HBoS merger. Since then, the opposition to the government assisted takeover has become louder.
Last week, the Economist came out against it for much the same reasons as I did.
Six weeks on, things look different—or at least they should. The government has slung a £400 billion ($650 billion) safety net under all the banks. This includes making available some £50 billion to those that cannot otherwise boost their capital to prudent levels, taking stakes in them in exchange. HBOS, which was formed from the merger of the Halifax, a former building society, with the Bank of Scotland, would presumably be as entitled to government support on its own as is, say, the wounded Royal Bank of Scotland (RBS). Yet the £17 billion earmarked for HBOS and Lloyds TSB is said to be dependent on their merger—and on October 31st the new business secretary, Lord Mandelson, disregarded the recommendations of some HBOS shareholders, many Scottish politicians and the official competition watchdog, the Office of Fair Trading (OFT), and waved through the deal. He made the wrong call.
Andreas Whittam Smith makes similar points in today’s Independent.
Over the weekend, two former bankers came out publicly against the merger. This is a mixed blessing for the opposition. The only suggestion Sir Peter Burt and Sir George Mathewson make is for HBoS to be given to them to run. As the Chief Executive then Chairman of RBS from 1992 until the middle of 2006, Sir George must bear at least some of the responsibility for the dire state that bank now finds itself in. It is a measure of the banker’s arrogance that he assumes HBoS shareholders would want to hand their bank over to him.
Nevertheless, this intervention has stirred things up and perhaps it will make the shareholders less likely to vote for the takeover.
A merger between Lloyds TSB and HBoS would create a bank with one third of the UK mortgage market. By waiving the competition rules and giving the merged bank a bailout, the government would effectively be subsidising the aggrandisement of Lloyds to the detriment of the consumer.
This is a bad deal for taxpayers and for bank customers. There is now no need for this merger so the government should withdraw its support.