The HBOS statement, which came ahead of its proposed placing and open offer which will allow its shareholders to invest in the new banking group, announced write-downs of £8billion.

As it stands, Lloyds TSB will raise £5.5billion through the Government’s recapitalisation scheme, and HBOS will seek £11.5billion. However, following the latest HBOS update, experts are suggesting that Lloyds TSB may have to raise further capital when the two merge to become Lloyds Banking Group.

The speculation follows the news that Bank of England chief Mervyn King believes more capital is required to prop up the UK’s banks and stimulate lending.

Commenting on the trading update at the time, Lloyds TSB said: “Whilst the fair value adjustments can only be finalised after the completion of the acquisition and in accordance with market conditions at the time, the additional impairment losses being incurred by HBOS are not currently expected to have a significant impact upon the size of the net negative capital adjustments the Group is likely to make upon acquisition.”

Further enforcing this view, Lloyds TSB chairman Sir Victor Blank, talking to the BBC yesterday about the prospects of Lloyds Banking Group, said of further recapitalisation, “As we see it at the minute that is not something we expect to happen.

“I think there will be some adjustment in the way we can use our capital and I think that will enable us to lend more. We’ve got a fairly sophisticated idea as to what kind of impairments we’re going to see in HBOS in the course of the next 12 months,” he added.

If everything goes to plan, the merger between HBOS and Lloyds, which will create a ‘superbank’ with a 28 per cent share of the mortgage market, will take place by the end of January 2009.

© Fair Investment Company Ltd