By now, you'll have heard some of the headlines — Lloyds TSB this morning announced a colossal £12billion takeover of Halifax Bank Of Scotland.
The reverberations of this deal are echoing not just through the Hospital corridors, but all over the UK!
After all, HBOS Group is by far Britain's largest mortgage lender, with over 20% of the country's mortgage loans, and £16bn of savings at stake too. The deal will effectively create a "Superbank" — dominating almost a third of the UK banking market.
At any other time, this deal wouldn't be allowed by the competition watchdogs. But it's actually the size of HBOS that is crucial as to why this deal was allowed. In fact, it wasn't just allowed, but positively encouraged by the Chancellor and the Prime Minister...
"The key thing is to maintain the stability in the banking system"
So said the Chancellor, Alastair Darling, commenting on the deal. The reality over the last few days was that HBOS's share price had been collapsing under the weight of concern from investors. Lloyds TSB's entry on the scene has given a welcome boost to confidence.
And as we learned from the Northern Rock implosion, confidence in banking is an important thing!
Because although HBOS is huge, it was becoming vulnerable to the kind of investor panic that can easily transmit to ordinary savers, prompting them to withdraw funds. The sheer number of UK homes and businesses that would be affected by any hint of an HBOS collapse meant that it simply couldn't be allowed to fail. That's what led the BBC to describe the deal as "effectively a rescue".
Lloyds TSB, on the other hand, described it very differently. Its chairman Sir Victor Blank called the takeover "a unique opportunity to create the largest and the best financial services group in the United Kingdom". He said:
"The combined group will be a great British bank, and one that’s able to compete globally."
HBOS chairman Dennis Stevenson agreed with him, saying:
"Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector."
Eric Daniels, the Lloyds TSB chief executive, also discouraged any suggestion that the takeover amounts to a rescue — saying "this is something we have been looking at for a good long while".
The transaction should be completed by the end of the year and although comments and reactions are only just coming out, it looks like the Superbank is being greeted as a much better option than letting market conditions threaten our big banks!
So, on to the biggest question:
"Should I worry?"
This is brand new news and details are only just coming out. But here at Money Hospital, we can see plenty of reasons to breathe easy...
- If you've got a bank account, mortgage or savings with Lloyds, Halifax or any of the other names above — don't worry. Investors have reacted well to this deal and your money is not in danger. Existing deals will continue, and it'll be a while before any changes to products will emerge. However, it's inevitable that there will be closure of some branches. Announcements on this are not expected until next year.
- If you're trying to get a mortgage or remortgage — the outlook is not bad. The new bank, which will dominate UK market share, has said it expects to continue or even expand on current lending levels.
- What's more, if you're a first time buyer (or will be soon) — there's good news. This morning's press release says that the bank expects to create new mortgage opportunities specifically for first time buyers.
- If you're concerned about the effect on the Scottish economy — Lloyds has moved quickly to assure everyone connected with HBOS that headquarters and AGM will stay in Edinburgh, it will preserve Scottish jobs and continue to print Scottish banknotes.
- And if you're an HBOS shareholder — the bank has been valued at 232p a share, a lot higher than it was on the stock market last week. No cash is involved; the deal means a straight swap, where you will get 0.83 Lloyds TSB shares for each HBOS share you own.
What do you think of the deal? Are you a Lloyds TSB or an HBOS employee, customer or shareholder? Why not let us know your thoughts in the comments below?