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All set to go: Lloyds has confirmed that it is intending to take over HBOS for £12.2bn. As expected yesterday, the share price of HBOS taken as the base of the merger valuation was the pre-fall value of 232p, as opposed 100p at which HBOS was trading just before the announcement of the merger yesterday.

The deal will probably be completed very quickly to end uncertainty around HBOS generally and help consumer confidence in the UK.

Lloyds is expected to generate cost savings of £1bn a year whilst slimming down the operations of the combined bank.

Job losses: To you and I this means that there will definitely be job losses as the result of this merger. There are some rumours of 40,000 jobs expected to go, which Lloyds denies. This would be about 27% of the total workforce of about 145,000 people and looks very, very aggressive. We’ll just have to wait and see – usually rumours that are strongly denied end up being true!

The merger will result in the formation of a huge institution owning a third of the UK mortgage market. The competition and monopolies commission did not stop this as the deal was encouraged and backed by the UK government.

The job losses we fear as the result of this transaction will add to the other expected job losses in the City in 2008 – together this paints a sad picture with many people ending up out of work. I am sure not everyone will have sympathy with the ex-high earners but there are plenty of people in the financial sector who are not earning crazy money and are the primary earners for their family. Losing their jobs will be tough on them.

Interesting times continue – as news broke this morning over breakfast in the UK that Lloyds is in “advanced merger talks” with HBOS (Halifax Bank of Scotland). This merger will create a giant UK retail bank out of two considerable players on the UK market.

Over the last week, HBOS shares fell from 300p to about 100p this morning following speculations about HBOS’s weak balance sheet. Rumours of insufficient reserves were vehemently denied over the past few days. However, as in politics, once the loss of confidence sets in, it’s almost impossible to reverse it as everyone believes “there is something in it” and acts accordingly – to sell.

HBOS shares recovered 15% after the surprise announcement about merger talks came out this morning.

The news of the merger will be welcomed by many investors and UK consumers as many mortgages and savings are with HBOS.

More information about the merger progress is expected tomorrow.

AIG to be saved: Fed steps in to arrange an $85bn (£45bn) loan to rescue the insurance giant AIG, as just reported. In return, it is getting a 80% stake in the company.

The other day I made a comment about banks and regulators not seeming to have learnt the lessons of the past. One such lesson I had in mind was central banks (=the Fed) acting as a lender of last resort to failing financial institutions in time of global economic crises. In the 1930ies, the Great Depression in the States was made much more severe for the Feb not stepping in and allowing institutions to fail.

Today, the Fed showed that it can act the part and does remember the lesson learnt in the 1930ies. Bravo.

Lehmans fate: However it does not explain why the Fed did not follow a similar approach for Lehmans. Can it be that the Fed is standing to make money out of the AIG deal, but Lehman is too “toxic” and unpalatable for the Fed? In which case the Fed would seem to be acting like a business, not as a central bank, and arguably carving out a new role for itself on the market? In its logical conclusion, iImagine the Fed or the Bank of England taking a position on the market and short-selling to make a quick buck.

Lucky that Barclays are interested in at least cherry-picking some of Lehmans assets. As the BBC reports, “Barclays does not want Lehman’s “toxic investments in the residential and commercial property markets. Nor does it want Lehman’s surviving, unsettled transactions”. 80% of US’s 10000 Lehmans employees might have a job at the end of it, but this is far less certain for the 5000 working in London.  

Interesting times are ahead for sure.


December 2019
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