Takeover 'may tip economy of Scotland into turmoil'
19 September 2008
SCOTLAND'S economy could be devastated by the Lloyds TSB takeover of HBOS, Alex Salmond said last night, after bank bosses refused to rule out compulsory redundancies.
The First Minister's warning came as the Financial Services Authority (FSA) slapped a temporary ban on short-selling financial stocks – the speculative trading some claim contributed to the sudden demise of HBOS.
Sources close to Alistair Darling, the Chancellor, said there would probably have been a Northern Rock-style run on HBOS had the tie-up not been accelerated and agreed.
Yesterday, the US investment bank Morgan Stanley scrambled to find a buyer as its shares tumbled a further 35 per cent, while central banks pumped in £100 billion of liquidity to calm panicked markets.
Meanwhile, the potential of a further mortgage-rate rise loomed as the cost of wholesale funding went up. One of the key inter-bank lending rates, the three-month Libor, increased to 5.98 per cent, up from 5.7 per cent at the end of last week.
The Lloyds/HBOS bank will probably have its global headquarters in London, Eric Daniels, who will be its chief executive, said yesterday. But he insisted it would retain a formidable presence north of the Border.
That did not convince Mr Salmond, who warned that the whole of the Scottish economy could be plunged into "turmoil". The First Minister has insisted for the past few months that the Scottish economy has proved more resilient than the rest of the UK to the effects of the economic slowdown.
But despite encouraging unemployment figures, he conceded for the first time that the financial sector was in serious trouble and the rest of the economy could go the same way.
He said: "Only yesterday, unemployment in Scotland reached a serious low, but the rest of the economy in Scotland will follow the financial sector, which is in turmoil."
Mr Salmond, a former economist, added: "It's important, not just for the Scottish economy, but mixed economies across the western world."
David Alexander, the owner of the Edinburgh property firm DJ Alexander, said the bank deal was "bad news for Edinburgh and bad news for Scotland". The implications would be huge for "the man on the street" and impinge upon all areas of the economy, from property to retailers.
"I think there will be a number of job losses immediately – not just in the banking sector, but the businesses which deal with them, from the cleaning lady to the firms who supply corporate toys," he said.
He warned that no-one knew where the global financial turmoil would end – something Mr Daniels had admitted earlier.
Ron Hewitt, the chief executive of Edinburgh Chamber of Commerce, did not subscribe to Mr Salmond's negative take on the economy, but was worried the £12 billion takeover meant there was a question mark over the nation's banking sector.
"The fact one of Scotland's great institutions has been brought down so rapidly does not look good," he said.
In its announcement to the stock market yesterday, Lloyds was keen to reassure doubters the history of Scotland's oldest bank would not be erased.
It said the Edinburgh base would remain as its Scottish headquarters, and the bank's annual general meetings would still be held there. The bank's notes will also remain.
Lloyds' "management focus" was to keep jobs in Scotland, where HBOS has 17,000 employees. There has been speculation that up to 40,000 jobs could be lost, but this figure was described by Lloyds TSB as being "on the high side".
Mr Salmond has already lambasted the "spivs and speculators" whose short selling is said to have sent HBOS shares into freefall earlier this week.
Last night, the FSA followed Russia and the US in temporarily outlawing the practice, under which traders sell shares they do not yet own at a knockdown price. The UK ban became active from midnight last night.
Hector Sants, the FSA chief executive, said short selling was not wholly to blame for the financial turmoil, but it was "exacerbating the situation and there are certainly times when we feel the quality of markets is very severely adversely affected".
A spokesman for the First Minister applauded the FSA for taking action, but said it should have been taken earlier.
"If only this action had been taken sooner, and the authorities defended such institutions, it is likely that we would be looking at HBOS remaining an independent bank and that we would not be facing the current situation, with all the uncertainty to people's jobs and livelihoods," he said.
Meanwhile, a senior Treasury source insisted there had been little choice but to push ahead with the takeover.
Andy Hornby, the chief executive of HBOS, whose future is unclear, said:
"The share price movement in the last few days was very concerning. But customer reaction has been very restrained."
Mr Daniels said the government had helped to arrange the takeover deal, but it had not been "a brokered marriage".
The spokesman for the Prime Minister, Gordon Brown, denied that the PM had lobbied Lloyds TSB to minimise job losses in Scotland.
He said: "Absolutely not. This was a commercial decision taken by Lloyds."
US Treasury ponders taking on all bad debt to revive economy
WALL Street recorded its best day in six years yesterday as a furious late rally followed reports the United States government was considering a comprehensive solution to the global financial crisis.
Responding to the week's unprecedented upheaval in the financial system, Henry Paulson, the US treasury secretary, mooted a proposal that would create a means of dealing with the billions of dollars of bad debt still clogging the financial system, a congressional aide said.
The idea has been compared to the "Resolution Trust" formed in 1989 to fix the savings and loan industry collapse.
An index of financial stocks jumped 11.7 per cent.
The Dow Jones industrial average jumped 3.86 per cent, to 11,019.69, while the Standard & Poor's 500 Index climbed 4.33 per cent, to 1,206.51. The technology-heavy Nasdaq Composite Index surged 4.78 per cent, to 2,199.10.
For all three, it was the biggest one-day percentage gain since October 2002 – when the last bull market was born.
Earlier yesterday, international central banks, including the Bank of England, European Central Bank and the US Federal Reserve, pumped $180 billion (£99.01 billion) into money markets to counter the worst financial upheaval since the Great Depression of the 1930s.
The move was aimed at boosting waning confidence that governments can stop the crisis from spinning out of control and at getting banks worldwide to open their ever-tightening purse strings.
Banks have been increasingly reluctant to lend to each other as distrust has spread throughout the financial system.
The FTSE 100 index closed down 32.4 points. The confirmation of the merger caused HBOS to rally towards the 232p a share offer price, up 17 per cent, or 25.5p, at 172.6p.
Lloyds shares fell however, ending the day down 15 per cent, or 42.25p, at 237.5p.
Meanwhile, the Council of Mortgage Lenders yesterday released figures which showed that new lending was down 36 per cent on last year at £21.8 billion.
However, there was better news from the high street last month, with retail sales up by 1.2 per cent.
In Russia, stock exchanges were closed for a second day as Dmitry Medvedev, the president, pledged a £10.98 billion injection into markets to stem plummeting share prices – and quash fears of a repeat of the country's 1998 financial collapse.
Asia markets continued to plummet overnight.
It's a tight squeeze as chairman rolls up in a 'golf cart'
AS ONE of the biggest names in UK banking, Sir Victor Blank clearly has matters of substance weighing on his mind rather than style.
The chairman of Lloyds TSB, who is charged with overseeing the transition of HBOS and Lloyds TSB into a new £30 billion British superbank, rolled up for a press conference in an £8,895 G-Wiz that is little bigger than an enclosed golf cart.
No chauffeur for this City grandee; not even one of the black Lincolns that ferried the most powerful figures in American banking and finance to an emergency meeting at the offices of the New York Federal Reserve following the Lehman Brothers collapse.
So is Sir Victor simply trying to flash his green credentials in a bright red car that can run for 35 miles after it is plugged into the mains?
Or is there more to be read into it, such as the fact the G-Wiz is made in India from plastics by the company Reva in Bangalore?
It is ironic that, for the past two years, Lloyds TSB has outsourced its human resources operations out of a centre in India.
And in May, the bank announced plans to move 450 IT jobs to India, with further areas of the IT division's 2,400-strong workforce expected to follow suit in future.
The full article contains 1523 words and appears in The Scotsman newspaper.
18 September 2008 11:50 PM
Halifax Bank of Scotland