Shareholders in Halifax Bank of Scotland were assessing their options today after the bank’s chairman said it could face nationalisation if the proposed takeover by Lloyds TSB was rejected.
HBOS is looking for investors to approve the deal, which will create a banking giant with around 145,000 staff and 3,000 branches across the UK.
Chairman Dennis Stevenson has said the bank could need to raise at least £12bn (€9.5bn) in capital if the takeover does not go ahead and a potential £11.5bn (€9bn) injection of taxpayers’ cash.
If the bank decided to go it alone it could be forced to raise dearer funds from the Treasury, potentially resulting in “the loss of independent or private sector status for HBOS”, Mr Stevenson said in a circular to shareholders.
Calls have been made by the former heads of Bank of Scotland and Royal Bank of Scotland, Peter Burt and George Mathewson, to abandon the deal, which they claimed was no longer necessary in light of government aid.
They said last night that the circular supported their case.
HBOS, which relies on wholesale markets for a large share of its funding, saw its shares pummelled in the turmoil following the collapse of Lehman Brothers in September.
Lloyds TSB is itself raising £5.5bn (€4.3bn) in new funds underwritten by the taxpayer which could see the British government owning more than 40% of the combined group.
Mr Stevenson said: “Being part of the enlarged group should improve confidence in the business, increase its long-term creditworthiness, reduce over time its cost of funding and better position the business for success in the future.
“The acquisition should also reduce uncertainty for HBOS shareholders.”
But a statement issued by Peter Burt and George Mathewson said: “This circular makes the case for us powerfully.
“It states that HBOS needs £12.5bn (€9.85bn) to survive as an independent bank. This figure is only 6% above the money the Government has already committed to the merger, compared to the additional 27% that Lloyds TSB would have to raise if a takeover does not go through.
“The Chancellor confirmed on October 8 that any eligible bank was entitled to apply for recapitalisation and has subsequently said that this is still the case.
“It is not clear from the circular what the justification is for Lord Stevenson’s comments that the alternative is nationalisation, given the (British) government’s declared willingness to recapitalise any eligible bank.”