Counting the Cost a Year after Lloyds' Takeover of HBOS

Article excerpt

Byline: Nick Goodway

ONE YEAR ago today, the news broke that Lloyds TSB was going to take over HBOS in a [pounds sterling]12.2 billion all-share deal. With the benefit of hindsight, it is still staggering to read the press release issued to the Stock Exchange the following morning, 18 September. Extracts included:

"The acquisition is a compelling combination which offers substantial benefits for shareholders and customers."

Lloyds' aim is to "build the UK's leading financial services company by focusing on sustainable earnings streams."

"Lloyds intends to increase the range of products on offer on competitive terms to first-time buyers."

"The combined group will benefit from a portfolio of strong and trusted brands including Bank of Scotland, Halifax, C& G and Scottish Widows."

"The acquisition will lead to accretion in Lloyds TSB's earnings per share of over 20% per annum ... from 2011."

For the sake of balance, it is worth recalling that those statements were made just two days after Lehman Brothers had gone bust, and Prime Minister Gordon Brown had infamously given his friend and Lloyds chairman Sir Victor Blank the political nod for the bid to go ahead at a Citigroup cocktail party at Spencer House.

It was to be another month -- 13 October -- until the Government was forced to bail out the banks, pumping [pounds sterling]11.5 billion into HBOS, [pounds sterling]5.5 billion into Lloyds and [pounds sterling]20 billion into Royal Bank of Scotland. That was the day when Lloyds took the opportunity to cut its share swap offer by 27%.

But enough of balance. It is time to examine just what a disaster the merger -- which Blank and his chief executive Eric Daniels had been pursuing for two years previously -- has been.

Let's start with the share price. The day the deal leaked, Lloyds shares closed at 2793/4p while HBOS shares were 1201/4p. Today Lloyds Banking Group shares stand at 108p.

So who's lost what? The Government -- acting for you and me, the taxpayer -- paid an average of 122.6p a share for its stake. So its current loss of 14.6p a share amounts to a fairly modest total of [pounds sterling]1.36 billion. Original Lloyds shareholders have lost their much-cherished dividend and about half their money in a year, while HBOS holders are slightly less than 50% down. …