Lloyds shotgun marriage to HBOS loses its shine
The shotgun marriage of Lloyds TSB and HBOS is having trouble even before the nuptials, with many members of the groom's family unhappy about the union.
HBOS profit up 3 percent as retail margins hitLloyds' proposed takeover of HBOS, unveiled before the government was forced to bail them out along with Royal Bank of Scotland, had promised to create a new British powerhouse.
But a month on, Lloyds investors look like losing their sacred dividend for at least a year, and won't even own a majority stake in the new bank.
HBOS shares dipped 1.4 percent on Monday to 78.9 pence, while Lloyds rallied 9 percent. That left HBOS shares 25 percent below the indicative offer price, a sign that some investors reckon the takeover will fail.
The HBOS deal is an abrupt change for Lloyds. The lender had been seen as a safe haven after picking its way through the credit crisis, helped by a conservative lending and risk strategy.
But the combination with HBOS increases its exposure to areas such as buy-to-let and commercial property lending that it had been careful to avoid.
The deal also brings more toxic assets onto Lloyds' balance sheet, increases its reliance on expensive wholesale funding, and increases the strain on its capital.
Lloyds on its own might have been able to turn down the government's rescue cash, which will require banks to suspend dividends until preference shares are repurchased.
"Lloyds on their own could be on the sunny side of the street with Barclays. But they're in the mire with HBOS, they'll probably be 40 percent publicly owned, and they can't pay a dividend - it's just a nightmare," said Fox-Pitt, Kelton analyst Leigh Goodwin.
"You're risking the bank ever being an investable proposition again. Why take the risk?"
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