UK Banking Giants Feeling the Pinch – HBOS Deal In Trouble

| October 1, 2008

During late August and Early September, the Halifax Bank of Scotland (HBOS) began to collapse. The UK was eager to prevent this at all costs, as Halifax bank is a major player in the UK. In a deal brokered in part by UK Prime Minister Gordon Brown himself, Loyds TSB would buy out the Halifax bank to prevent a melt down. Now word comes from several reports in the UK that the this deal is starting to fall apart, by some measure due to the continuing deterioration of banking balance sheets world wide as the deflation fire burns up assets hourly. From the Telegraph, Financial crisis: HBOS takeover by Lloyds TSB in turmoil

Earlier this month, Lloyds agreed to takeover HBOS after it ran into serious financial trouble. Gordon Brown, the Prime Minister, personally helped to secure the deal by rewriting competition laws to allow it to proceed. Under the deal, HBOS shareholders were offered 0.833 of a Lloyds’ share on the day the deal was announced for each HBOS share. Therefore, Lloyds TSB has paid £12.2 billion.

On Tuesday, rumours circulated among stock market traders that Lloyds would seek to renegotiate the deal. This was denied by both Lloyds and HBOS. “The market is telling you the deal will just not go ahead in its current form,” said one major investor.

There are also growing concerns about Royal Bank of Scotland (RBS) whose shares have also fallen sharply over the past few days. RBS is involved in a major business deal involving Fortis, the Belgian bank which was partially nationalised at the weekend. RBS investors have been unnerved by Fortis’s problems because it is in the process of splitting ABN Amro’s Dutch operations with RBS, following their consortium takeover of ABN with Spain’s Santander last year for £47bn.

The UK Independent (who linked to the Boomerang banking health demo) also chimes in on the deteriorating state of the world financial system and the Halifax deal, We’re back to the world of tight credit and miserly banks

There is an implicit government guarantee on the deposits of every bank in the UK but because it is not explicit you still have people pulling money out of any bank deemed dodgy, as Bradford and Bingley found last week. Looking ahead, I don’t like the way the Halifax Bank of Scotland situation is developing. We are not through this one yet. The deal may have to be renegotiated.

The longer this takes and the more botched the interventions, the more damage there will be to the world economy. That is what matters most. Some kind of slow-down is inevitable and it may be that some, maybe most, developed countries will experience a recession. Denmark and Ireland are Europe’s founder members of that club but expect more to join them soon. But there is no need for these recessions to be particularly serious.

Make no mistake, the big money in the world is fighting this every way they can think up, but as we have written here countless times – the problem is no longer math. Trust in the financial system is breaking down, and not without good reasons. Until that trust is restored, the collapse will continue.

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Category: Credit Backlash, Economics, Main, Recession Watch

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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