Merger to create new UK 'superbank'

HBOS and Lloyds TSB will merge to become Lloyds Banking Group on Monday in a move creating a new UK “superbank”.

The newly enlarged group – by far the biggest bank in the UK – officially lists on the London Stock Exchange after one of the largest ever deals in the sector.

For HBOS, the deal marks the end of more than 10 years as a separately-listed entity, with Halifax first floating in 1997 after the former building society demutualised and later merged with Bank of Scotland in 2001.

The new Lloyds Banking Group will boast around 145,000 staff and 3,000 branches, including 43 branches of the consumer bank Halifax in Ireland as well as the Bank of Scotland (Ireland) business banking network.

The bank will be 43.4% owned by the British taxpayer after the UK government pumped nearly £17bn (€19bn) into the banks under its part-nationalisation scheme.

UK taxpayers are already nursing a paper loss of around £4.9bn (€5.5bn) on the ordinary shares bought in the two groups after further heavy losses for the sector this week on the London market.

Paper losses on the 58% stake bought in Royal Bank of Scotland have also run-up to around £5.2bn (€5.85bn) after the latest hefty falls.

The UK government also injected billions of pounds into all three banks in return for preference shares, which come with conditions such as a ban on executive bonuses while they are still held by the British treasury.

Lloyds TSB announced its rescue takeover of HBOS as the lending giant became increasingly vulnerable in last autumn’s financial crisis.

The deal will change the face of the UK banking system, trimming the original “big five” to four.

Lloyds Banking Group will have a combined mortgage book of more than £340bn (382bn) and more than £240bn (€269bn) in current and savings account deposits.

But there are fears that the merger will result in thousands of job losses across Scotland and the UK.

Lloyds has already said it will seek to cut annual costs by £1.5bn (€1.68bn), although it has yet to give an idea of the impact on staff.

The merger has met with fierce opposition from some ministers in Scotland as fears of job losses grow.

It also narrowly avoided a High Court showdown with guardians of HBOS’s 80,000 member final salary pension scheme, which backed down from a legal challenge just days before the deal’s approval.

The trustees had threatened to ask the judge not to ratify the scheme of arrangement until greater protection was offered for the pension fund.

Shareholders of both banks voted overwhelmingly for the deal before Christmas and the deal received court approval on January 12, despite the threat of potential rival bidders and court action from pension trustees.

HBOS shares were suspended from trading after the market closed on the following Wednesday, paving the way for the new Lloyds Banking Group shares to list on Monday.

HBOS will be replaced in the FTSE 100 Index by construction and services group Balfour Beatty.