HBOS chairman Lord Stevenson sent shareholders a circular detailing the bank’s stance on the merger. It admits that HBOS considered to remain independent, as Sir Burt and Sir Matthewson are petitioning, but thinks the “the strong franchise that the enlarged Group will enjoy” is a better move.
It also states that without the Lloyds TSB merger: “HBOS would be required to raise capital in order to meet FSA requirements in circumstances where there can be no certainty as to the amount that would be required or whether HBOS would be able to successfully raise such capital or as to the terms on which such capital could be raised and the adverse impact that failure to raise such capital would have on HBOS.”
The letter reveals that the FSA has told HBOS that it: “would require £12bn of additional capital”.
The dissidents, Sir Peter Burt and Sir George Matthewson have used this figure to cement their stance.
They say: “We are delighted that HBOS has finally blown some of the fog away from its figures. This Circular makes the case for us powerfully. It states that HBOS needs £12bn to survive as an independent bank. This figure is only 6 per cent above the money the Government has already committed to the merger, compared to the additional 27 per cent 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.
“Lord Stevenson alleges that it is unclear on what terms this capital would be granted. The terms of any capital granted to Lloyds TSB also remain unclear. However, what we do know is that the Government has said the terms of all capital granted to UK banks would be on a level playing field.
“We look forward to a coherent argument from the HBOS Board as to why the Lloyds TSB takeover is better for HBOS shareholders than seeking this level of assistance from the Government. It is not clear from the Circular what the justification is for Lord Stevenson’s comments that the alternative is nationalisation, given the Government’s declared willingness to to recapitalise any eligible bank.”
This comes as fellow dissident Jim Spowart, the founder of Intelligent Finance, admitted that his own possible HBOS deal has been defeated. The Scottish financier says political pressure on both sides of the border led to the demise of his deal, which was rumoured to have been backed by Bank of China.