Lloyds - HBOS Merger

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LLOYD - HBOS Merger 2012 Jason Cates

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Analysis of the Lloyds - HBOS merger.

Transcript of Lloyds - HBOS Merger

Page 1: Lloyds - HBOS Merger

Jason Cates

LLOYD - HBOS Merger

2012

Page 2: Lloyds - HBOS Merger

Jason Cates

1. Company Profiles2. The Industry3. The Acquisition4. Lloyds Banking Group5. Motivation6. Effect on shareholders7. Current Situation8. The Future

Contents

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A merger of Lloyds Bank and the TSB Group

One of Big Four UK retail banks

16 million personal and small business customers

By 2013, 620 branches will be divested from the Group to comply with EU state aid requirements

Lloyds TSB

(BBC, 2009a) (Guardian, 2011)(NY Times, 1995)

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A British banking and insurance company

A merger of Halifax and the Bank of Scotland in 2001

UK’s largest mortgage lender

Corporate headquarters located in Edinburgh

A mortgage book of £500bn (€600bn) at time of acquisition

HBOS

(All Business. 2001) (Guardian, 2001)(Guardian, 2008) (NY Times, 2008) 2012

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How they compare?

(BBC, 2009a)

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54 Million active personal bank accounts in the UK

Banks made £152 (€180) from each active account in 2006

(£2.6bn (€3.1bn) from overdraft bank charges)(£4.1bn (€4.9bn) from from net credit interest)

80% of customers do not pay up-front for their current account

47% of customers have never considered switching their accounts

(Only 6% have switched current accounts in the past year)

The Industry – Current Accounts

(BBC, 2008a)

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UK gross mortgage lending stood at £140bn in 2011, 3% higher than in 2010

House sales in 2012 likely to remain stagnant

Future expectations of Transaction numbers◦ Fall by 3% in 2011-12,◦ Rise by 1.5% in 2012-2013 and◦ Rise by 20.7% in 2013-14.

At the time of the acquisition◦ HBOS held 20% of the mortgage market (Largest in the UK)◦ Lloyds held 8% of mortgage market (4th Largest in the UK)

The Industry – Mortgages

(BBC, 2008c) (BBC, 2011c)(BBC, 2012b)

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Market Share & Share Price

(BBC, 2011b)

(BBC, 2009a)

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Final deal worth £12bn (€14.3bn)◦ £2.32 (€2.77) per share

0.5% of the new shares taken up by Lloyds shareholders

0.24% taken up by HBOS shareholders

HBOS shareholders received 0.83 Lloyds shares for every HBOS share they hold

The Acquisition

(Money Wise, 2011)

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Lloyds TSB shareholders would own 56%

HBOS shareholders would own 44%

Such a merger would not normally be allowed due to EU competition laws

The national interest clause was used to override objections concerning competition

The Acquisition

(Money Wise, 2011) (BBC, 2008c)

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Sept 2008 – News of the takeover talks became public (BBC, 2008b)

Nov 2008 - Agreed by the Lloyds TSB shareholders - 95.98% in favour (BBC, 2008d)

Dec 2008 – Agreed by HBOS shareholders (BBC, 2008e)

Jan 2009 – Takeover Completed and Lloyds Banking Group was formed (Your Mortgage, 2009)

The Acquisition - Timeline

(BBC, 2008b) (BBC, 2008d)(BBC, 2008e) (Your Mortgage, 2009) 2012

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Formed in 2009 when Lloyds TSB acquired HBOS

Held 28 % of the UK mortgage market at time of acquisition

UK Government holds a 43.4% stake in addition to £4bn in preference shares

Four business divisions: Wholesale, Retail Banking, Pensions & Insurance and Wealth Management

23rd largest company on the London Stock Exchange based on market capitalisation (£0.33 per share)

Lloyds Banking Group

(BBC, 2009b) (Stock Challenge, 2011)

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UK government urged Lloyds TSB to buy HBOS after customers had begun to withdraw their savings

The lack of diversification made HBOS vulnerable during the financial crises (Guardian, 2008)

If Lloyds TSB hadn’t taken over HBOS, additional capital from the government would have been needed

Competition laws set aside out of “National Interest”

Motivation

(BBC, 2008c)

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US shareholders suing Lloyds Directors for the money lost on the acquisition of HBOS

Claimed a £25.4bn (€30bn) loan to HBOS by the Bank of England was kept secret

“Up to 800,000 shareholders lost a total of £2bn (€2.4bn) … because of the deal”

Effect on Shareholders

(City Wire, 2011) 2012

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Annual loss of £3.5bn (€4.2bn) in 2011

Includes£3.2bn (€3.8bn) to cover claims over payment protection insurance

Removing PPI and other one-off costs, the bank made £2.7bn profit (€3.2bn) in 2011 (Sky News, 2012)

Current Situation

(BBC, 2012a) 2012

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Loan advances to customers fall 3% and bank account deposits rise 5% in the year

Bad debts fell by 26% over the year to £9.8bn

15,000 job cuts and Selling 632 branches to comply with competition law

Investors impressed with CEO Horta-Osorio before he took medical leave

Current Situation

(BBC, 2011a) (BBC, 2012a) (Sky News, 2012) 2012

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A weaker economy may prevent Lloyds hitting revenue targets

Considering dividend payments by 2013

Selling 632 Lloyds TSB branches to the Co-op

Selling £36bn (€43bn) worth of deposits and£47bn (€56bn) of mortgages & loans

The Future

(BBC, 2011a) (BBC, 2012a) (City Wire, 2011) 2012

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Harvard Referencing All Business (2001) Europe: Bank of Scotland, Halifax tie knot Available at: http://

www.allbusiness.com/public-administration/national-security-international/1038824-1.html [Accessed: 1st March, 2010]

BBC (2011a) Lloyds names Co-op as preferred buyer of bank branches Available at: http://www.bbc.co.uk/news/business-16174571 [Accessed: 1st March, 2010]

BBC (2012a) Lloyds Banking Group makes annual loss of £3.5bn Available at: http://www.bbc.co.uk/news/business-17151214 [Accessed: 1st March, 2010]

BBC (2011b) Bank shares fall despite bail-out Available at: http://news.bbc.co.uk/2/hi/7622380.stm [Accessed: 1st March, 2010]

BBC (2011c) Housing market to pick-up in 2013, says OBR Available at: http://www.bbc.co.uk/news/business-15968051 [Accessed: 1st March, 2010]

BBC (2012b) Mortgage outlook is uncertain, says CML Available at: http://www.bbc.co.uk/news/business-16678921 [Accessed: 1st March, 2010]

BBC (2008a) Current account debate in numbers Available at: http://news.bbc.co.uk/2/hi/business/7509375.stm [Accessed: 1st March, 2010]

BBC (2008b) HBOS confirms Lloyds merger talks Available at: http://news.bbc.co.uk/1/hi/business/7621151.stm [Accessed: 1st March, 2010]

BBC (2008c) Lloyds TSB seals £12bn HBOS deal Available at: http://news.bbc.co.uk/2/hi/business/7622180.stm [Accessed: 1st March, 2010]

BBC (2009a) In graphics: Lloyds TSB and HBOS merger Available at: http://news.bbc.co.uk/2/hi/business/7623538.stm [Accessed: 1st March, 2010]

BBC (2008d) Lloyds TSB approves HBOS takeover Available at: http://news.bbc.co.uk/2/hi/business/7736722.stm [Accessed: 1st March, 2010]

BBC (2008e) HBOS shareholders back takeover Available at: http://news.bbc.co.uk/1/hi/business/7778914.stm [Accessed: 1st March, 2010]

BBC (2009b) Lloyds HBOS merger gets go-ahead Available at: http://news.bbc.co.uk/2/hi/business/7823521.stm [Accessed: 1st March, 2010]

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Harvard Referencing City Wire (2011) Lloyds shareholders say Mandelson 'misled courts' over secret loan Available at: http://

citywire.co.uk/money/lloyds-shareholders-say-mandelson-misled-courts-over-secret-loan/a482050 [Accessed: 1st March, 2010]

Guardian (2008) Lloyds TSB takeover talks with HBOS: the key issues Available at: http://www.guardian.co.uk/business/2008/sep/17/lloydstsbgroup.hbosbusiness [Accessed: 1st March, 2010]

Guardian (2001) HBOS: the issue explained Available at: http://www.guardian.co.uk/money/2001/may/04/personalfinancenews2 [Accessed: 1st March, 2010]

Guardian (2011) The Lloyds TSB list: branches that will be sold Available at: http://www.guardian.co.uk/news/datablog/2011/jun/08/lloyds-banking-group-selling-sold [Accessed: 1st March, 2010]

NY Times (2008) Britain's housing bust is bringing down the economy, too Available at: http://www.iht.com/articles/2008/08/07/business/pound.php [Accessed: 1st March, 2010]

Money Wise (2011) Will you benefit from an HBOS and Lloyds TSB merger? Available at: http://www.moneywise.co.uk/markets/corporate-news/will-you-benefit-hbos-and-lloyds-tsb-merger [Accessed: 1st March, 2010]

NY Times (1995) International Business; Lloyds Bank to Merge With TSB Group Available at: http://query.nytimes.com/gst/fullpage.html?res=990CE2DA163EF931A25753C1A963958260 [Accessed: 1st March, 2010]

Sky News (2012) Lloyds Bank Reports £3.54bn Loss For 2011 Available at: http://news.sky.com/home/business/article/16176163 [Accessed: 1st March, 2010]

Stock Challenge (2011) FTSE All-Share Index Ranking (unofficial guide) Available at: http://www.stockchallenge.co.uk/ftse.php [Accessed: 1st March, 2010]

Your Mortgage (2009) Lloyds completes HBOS takeover Available at: http://www.yourmortgage.co.uk/news/3625743 [Accessed: 1st March, 2010]

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