Lloyds and HBOS must merge or lose £17billion of Government rescue cash

22 October 2008 / by Rachael Stiles
If Lloyds TSB and HBOS do not go through with a merger, as planned, then they will not get the £17billion of rescue money promised to them from the Government, Peter Mandelson has reportedly told the banks.

The takeover of HBOS by Lloyds TSB has been thrown into doubt due to the most recent wave of turmoil in the stock market which caused HBOS' share value to plummet, making it worth less than the figure Lloyds had agreed to pay and prompting the to ask for a renegotiation.

But Lord Mandelson, the new Secretary of State for Business, Enterprise and Regulatory Reform, said that the £17billion rescue money – £5.5billion for Lloyds and £11.5billion for HBOS – is on the condition that the merger takes place, the Telegraph has reported.

Shares in both of the banks rose amid views that the merger looks likely to go ahead. Lloyds rose 0.29 per cent to 174 per cent, while HBOS saw a 4.56 per cent increase, rising to 82.5 per cent. Shareholders still have to pass the deal for the two banks to receive the bail-out from the Government.

Mandelson's comments have illustrated the level of Government pressure being put on the banks to complete to deal. But this has left some analysts wondering why Lloyds should be forced to take on a failing bank in order to receive help that other institutions are also getting without being put under similar pressures.

Lloyds shareholders are wary about taking on the stricken lender's loan book, which already has higher arrears than Lloyds' and is more exposed to risky mortgages, and which may have to be marked down further.

© Fair Investment Company Ltd