Newspaper article The Evening Standard (London, England)

Unsteady HBOS Could Be Facing Full State Takeover

Newspaper article The Evening Standard (London, England)

Unsteady HBOS Could Be Facing Full State Takeover

Article excerpt


PLANS for the full-blown nationalisation of Halifax Bank of Scotland have been drafted by the Treasury amid fears that its merger with Lloyds TSB is in danger of falling apart.

Only 24 hours after Chancellor Alistair Darling's unprecedented bank bail-out plan was unveiled, there were fears that the cost to the taxpayer could soar even further if the takeover of Britain's biggest mortgage lender collapsed.

Critics pointed out that plunging share prices for the Royal Bank of Scotland, HBOS and Lloyds TSB could cause serious problems for the Government.

Just as worrying, the interbank lending rate a key indicator of whether banks are beginning to trust each other again fell only slightly last night.

The Treasury was today sitting on a paper loss of ?2 billion after investors took fright at its rescue plan.

As the full implications of the bail-out sank in, analysts also warned that yesterday's deal could swamp the public finances if the Office for National Statistics decided that the banks' liabilities should be added to public debt.

The Institute for Fiscal Studies said that adding RBS's ?1.8 trillion in liablities would leave Britain with a huge national debt of ?2.6 trillion.

Although shares in the FTSE bounced, those in the individual banks being semi-nationalised plunged. HBOS slumped 27 per cent, Lloyds TSB 14 per cent and RBS eight per cent.

Gordon Brown declared yesterday that the Government was buying bank shares "at the bottom of the market" and with a discount, but it became clear that prices were sliding further.

If the bank shares continue to slump, private shareholders are increasingly likely to reject the chance to buy their stock. But given the millions of mortgages and savings affected, if they fall substantially lower then the Government may have to step in just as it did with Northern Rock and Bradford and Bingley.

The Government is currently likely to end up with 60 per cent of RBS and up to 43 per cent of a merged Lloyds TSB and HBOS.

If the Lloyds TSB-HBOS deal does fall apart, Treasury officials have indicated that they are ready to do "whatever is necessary" to address problems at HBOS, including 100 per cent nationalisation. …

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