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Brown criticised over Lloyds HBOS merger amongst talk of nationalisation

16 February 2009 / by Rachel Mason
Gordon Brown faced further criticism last night over his part in the rushed take-over of HBOS by Lloyds TSB.

Yesterday, Financial Services Authority (FSA) chairman Lord Turner suggested that if the Prime Minister hadn't pushed Lloyds TSB and HBOS into a merger in an attempt to ease the UK banking crisis, the latter could have been rescued without the need for a takeover.

Speaking on the BBC's Andrew Marr show, Lord Turner admitted that although the FSA was involved in the debates about the banks in 'general terms' it was not directly consulted on the Lloyds TSB/HBOS merger, saying that it was "fundamentally driven by the parties concerned."

Lord Turner then said that "there could have been a different way of directly supporting HBOS and keeping Lloyds separate."

The FSA chairman also said that the FSA was not surprised by the Lloyds Banking Group's announcement that HBOS had lost more than £10billion last year saying that the regulator had predicted such losses following stress-testing in October.

"The losses that have been revealed this week, I would point out, are not huge surprises to the FSA" he said.

Taxpayers have already injected £17billion into the Lloyds Banking Group and now own a 43 per cent stake.

Following the £10billion losses announcement, and Lloyds Banking Group chief Eric Daniel's admission last week that had Lloyds not taken on HBOS, it would not have had to turn to the Government for a bail-out, it is now looking more likely that the 'superbank' will need further funding or even be nationalised completely.

Although the Government insists that nationalisation of another institution is very much a last resort, many are predicting the Prime Minister will be left with very little choice.

Liberal Democrat shadow chancellor Vince Cable said that Lloyds was being dragged down by HBOS, and that nationalisation is increasingly likely.

"This is yet more alarming news about the disastrous state of the banking sector," he said.

"It looks increasingly as if Lloyds is being dragged under by the dead weight of HBOS, a financial disaster created by Andy Hornby and his predecessor Sir James Crosby.

"Obviously we need to digest the detail, but it looks increasingly as if Lloyds HBOS will now go into majority public ownership, followed inevitably by nationalisation."

While Joshua Raymond, market strategist at City Index, said that the results "remind us just how bad a situation HBOS was in, but it also raises fears amongst Lloyd's shareholders that they may have bitten off more than they can chew with the HBOS acquisition."

Shares in Lloyds Banking Group plummeted 32 per cent to 61.4p on the Friday after the announcement of HBOS' 2008 losses.

The crash, which was more than double the loss predicted by many City analysts, means that the UK taxpayer lost around £2billion on its 43 per cent stake in the group.

© Fair Investment Company Ltd