HBOS confirms talks on Lloyds TSB takeover

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(Agencies)
Updated: 2008-09-17 22:51

LONDON -- Embattled mortgage lender HBOS PLC confirmed Wednesday that it is in advanced talks about being taken over Lloyds TSB PLC in what would be a further reshaping of the financial industry from the credit crisis.

The brief announcement to the London Stock Exchange gave no details, adding that the talks may not lead to an agreement.

Reports of a potential deal pushed HBOS and Lloyds shares into positive territory, reversing earlier losses. At one point, HBOS shares were down as much as 47 percent from Tuesday's close of 182 pence ($3.26), but then rose to more than 20 percent higher.

The BBC report dragged HBOS and Lloyds shares into positive territory, reversing earlier losses. At one point, HBOS shares were down as much as 47 percent from Tuesday's close of 182 pence (US$3.26), but then rose to more than 10 percent higher. HBOS shares closed at 730.5 pence on January 2.

Lloyds shares traded in a narrower range, veering from 10 percent down from Tuesday's close of 279.75 pence (US$5.01) to 10 percent higher. Lloyds shares started the year at 469 pence.

The news comes after the bankruptcy of US investment bank Lehman Brothers Holdings Inc., Bank of America's deal to take over Merrill Lynch, and the US Federal Reserve bailout of faltering insurance giant American International Group.

Prime Minister Gordon Brown's office declined to comment on the BBC's report that he had been in touch with Lloyds TSB's chairman, Sir Victor Blank, about the deal.

"The prime minister speaks to all sorts of senior businessmen and financial figures all the time," Brown's spokesman Michael Ellam told reporters.

"As you would expect, the Treasury, Bank of England and Financial Services Authority remain in close contact with all the major financial institutions in the U.K. and obviously the prime minister is kept informed," the spokesman added.

HBOS, parent company of Halifax and the Bank of Scotland, has come under pressure because of its exposure to the US subprime mortgage market, raising questions about whether it can refinance its debt of more than 100 million pounds (US$180 million) in coming months. The company insists that it has no problems raising money.

The Financial Services Authority, Britain's financial regulator, weighed in Wednesday with assurances that HBOS was secure.

"Since the beginning of the current extreme difficulties in the financial markets, the Financial Services Authority has worked intensively with all major UK banks to ensure they have credible capital and liquidity plans," the agency said. "We are satisfied that HBOS is a well-capitalized bank that continues to fund its business in a satisfactory way."

Vince Cable, economy spokesman for Britain's Liberal Democrat party, accused hedge fund managers of "hunting in packs" to undermine HBOS.

"It is shocking to see a major British bank brought to its knees by an attack by hedge fund speculators engaged in short selling," Cable said.

"They were only able to speculate because they knew HBOS had a government guarantee and would be bailed out by the taxpayer. If Lloyds hadn't stepped in, the government would have had to take over."

Both Lloyds, the fifth-largest U.K. bank by market capitalization, and HBOS have seen their earnings fall from the impact of the subprime mortgage crisis in the United States.

HBOS reported a 56 percent drop in first-half net profit, down from 2.1 billion pounds (US$3.8 billion) in the first half of 2007 to 931 million pounds (US$1.67 billion) this year.

Lloyds TSB reported a 63 percent drop in first-half net profit to 576 million pounds (US$1.03 billion). Lloyds TSB is the UK's third biggest home mortgage lender.

HBOS, which writes about a fifth of the home mortgages in the U.K., has 235 billion pounds (US$420 billion) in outstanding home loans. The company also accounts for 16 percent of U.K. savings deposits.

HBOS raised 4 billion pounds (US$7.2 billion) in July through a rights issue. Only 8 percent of its shareholders took up the offer, leaving the underwriters, Morgan Stanley and Dresdner, to find buyers for the remainder.