In an extraordinary move, Lloyds TSB has announced a £12.2 billion takeover of
its rival HBOS, which owns Halifax and Bank of Scotland.
Combined they will have over a quarter of the UK mortgage market and a large
chunk of the personal banking and business banking markets.
Here we explain how you could be affected and if your money is protected.
Q: What does this mean for HBOS and Lloyds TSB customers?
A: Not much at first, regulators hope. The aim would be to restore
confidence in HBOS and to pre-empt the danger that depositors withdraw their
money and institutional clients start to shun HBOS.
Q: I am a saver with Halifax, part of HBOS. Are my savings safe?
A: Yes. To start with, HBOS is solvent. It has already beefed up its
balance sheet with a £4 billion rights issue designed to give it a greater
financial cushion. It is also generally agreed that HBOS, as the largest
savings and mortgage institution in the UK, is too big to be allowed to
fail. In the event of the merger being called off, the Government would
almost certainly step in to prevent a financial collapse.
The Financial Services Compensation Scheme (FSCS) also provides limited
protection to savings and investments.
The FSCS will guarantee up to £35,000 of your bank deposits, although the
Financial Services Authority (FSA), the City watchdog, is currently
consulting on raising this to £50,000.
Investments are covered up to £48,000 - 100 per cent of the first £30,000 and
90 per cent of the next £20,000. For pensions and insurance-based investment
products, such as with-profits, you would get 100 per cent of the first
£2,000 and 90 per cent of the remainder of the claim.
Q: I have savings accounts with both Lloyds TSB and HBOS, how will I be
affected?
Under the terms of the FSCS, the compensation is £35,000 per "authorised
institution", not per account.
If a newly merged bank became just one authorised institution with the
Financial Services Authority (FSA) then savers would have cover for only the
first £35,000, not more. However, banks sometimes retain their separate
authorisations with the FSA after a merger, as in the case of the RBS and
the NatWest.
Q: Is this a bad time to open a current account with Lloyds or HBOS?
A: Not really, as it will be months before the two entities are
actually nailed together as the deal needs to win the approval of investors
and go through various legal hoops.
But there may be disruption ahead: as well as branch closures, there could be
a cull of call centres and other back-office arrangements.
However, banks in the process of consolidation try to ensure the upheaval has
as little effect as possible on customer service. The seismic changes will
be for the employees, many of whom are likely to lose their jobs.
Q: I have my mortgage with Halifax. Do I need to worry?
A: No, as your mortgage will not be affected. David Hollingworth, of L&C
Mortgages, a mortgage broker, says: "If a merger takes place the terms
and conditions of your mortgage would be preserved." The same goes for
borrowers with a mortgage from Lloyds TSB.
However, he adds that the merger will have implications for the wider mortgage
market. "A takeover of the UK's biggest lender by the fourth-biggest
lender would reduce competition by removing a major player from the market
and creating a giant which had nearly 30 per cent of the mortgage market.
Reduced competition would not be good for consumers as a whole."
Q; I am a shareholder in HBOS and have seen my shares plummet in recent
days. What happens now?
A: Nearly two million Britons hold shares in HBOS which have have
fallen by as much as 65 per cent since Monday. On Wednesday night HBOS
shares closed at £1.47.
If the deal goes ahead, HBOS shareholders are set to be given new Lloyds
shares worth 232p for each HBOS share, a huge fall in value from the £10 a
share HBOS was trading at 18 months ago, but still better than the worst
case scenario of being wiped out.
Under the terms of the deal, which must be agreed by investors, HBOS
shareholders will receive 0.83 Lloyds' shares for every HBOS share.
The takeover could provide HBOS shareholders with some much-needed stability.
But if you think the bank is being undervalued you may not be happy.
I own shares in Lloyds TSB, what does this merger mean for me?
Anyone who has shares in Lloyds TSB may be wondering whether buying its rival
is really such a good deal. If there is an underlying problem with the
finances of HBOS it will not disappear overnight. That said, the enlarged
group will control a third of the current account market and 28 per cent of
home loans, giving it a degree of market control that may provide the
oppurtunity to push up prices and eventually profits.
Q: How will the savings market be affected?
A: Savers could be one of the few winners of the ongoing turmoil. Banks
are likely to continue to be cautious about lending money to each other.
As a result, mortgage lenders will be more reliant on using money from savers
to fund their lending. This reliance means high rates on offer to savers are
unlikely to disappear any time soon, with banks and building societies
coming under increasing pressure to get savers’ money through their door.
Q: Could a British bank go bust?
A: Analysts are not ruling it out, but they say it is unlikely. Mike Lenhoff,
of Brewin Dolphin, the stockbroker, said: “We had the chief executive of a
major UK bank into our offices last week and his view was that the worst is
over, at least for his business. UK banks have already written down an awful
lot, so we think a bankruptcy here is unlikely.”
Q: My savings and investments are worth more than the compensation limits.
What should I do?
A: If you have more than £35,000 with any one bank it might be worth moving
the additional money elsewhere for peace of mind.
Bear in mind that if you have savings products with different brands owned by
the same company, the £35,000 limit applies. Halifax, Bank of Scotland,
Birmingham Midshires and Intelligent Finance, for example, are all part of
the same group and are registered with the FSA under the name of Bank of
Scotland.
This issue has been highlighted by the rescue of Derbyshire and Cheshire
building societies by Nationwide last week – many savers who have deposits
with all three banks have had their protection slashed by the deal.
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