‘Lloyds shareholders to vote on HBOS takeover’

October 30, 2008 at 2:34 pm

Lloyds TSB wants to complete its takeover of struggling bank, Halifax-Bank of Scotland (HBOS), by the beginning of next year. The proposal has entered its final stage and shareholders on both sides of the merger will be given the opportunity to vote on the deal in the coming weeks. The recommended offer for the consumption of HBOS shares is in the region of £5.2 billion.

HBOS was bailed out by the British Government on October 13th 2008. The Prime Minister, Gordon Brown, explained that the move was necessary to avoid a complete meltdown of the financial sector, and that struggling banks will be expected to lend a sympathetic ear to consumers wanting to borrow money in the future. HBOS is still unable to escape from the sea of debt which consumed it in October and, as of this weekend, it was still trading well under the agreed offer price.

Shareholders on both sides of the merger are bracing themselves for the worst. Both banks have been battered by several months of financial instability and shareholders fear that further slumps could force a complete renegotiation of the deal. Lloyds are keen to keep the total price as low as possible but HBOS are reluctant to see the bank sold for peanuts. Should the takeover fail, the British government will claim 43.5% of the total value of the two banks.

Scottish ministers and politicians have been vocal in their campaign to call off the takeover. The Liberal Democrat leader, Tavish Scott, wants the government to make funds available to HBOS in order to secure its future as an independent body. He explained that the takeover plan is a threat to employment at a time when jobs are in short supply.

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‘British banking rescue progresses’

October 24, 2008 at 5:24 pm

In the aftermath of the government rescue package for British banks of October 8th, the Treasury has come under pressure from the rescued banks and their investors to alter the terms of the package. The original terms, as reported in this blog, allowed banks up to £25bn in the form of government-owned preference shares. After taking up the government’s offer of help, Lloyds TSB, HBOS and Royal Bank of Scotland announced that they would not be paying dividends to their shareholders until the government had been repaid for its preference shares.

Faced with uncertainty about how long it will be before dividends are paid out again, shareholders have responded with ambivalence to the block on dividend payments, highlighting the friction between providing measures that safeguard taxpayers’ funds and firing up share prices once more. The block on dividends has been criticised for being counterproductive.

Another factor which is damaging the attractiveness of shares in the three rescued banks is the potentially large extent of government intervention in their management in the future. Chancellor Alistair Darling has stressed that the object of the exercise is not for the government to run the banks, and that they will instead be run "on a fully commercial basis by an arm’s length body to act in the interests of taxpayers." However, it seems inevitable that the government’s large stake will have influence on the direction banks take in the future, if only by the obligation they now have to take taxpayers’ interests into account in their decision making process.

Elsewhere, optimism has been voiced, with comments from parts of the City that the rescue package does leave banks with enough flexibility to engage shareholders with the recapitalisation process. If the balance is not struck here, and soon, then the banks will remain a very discouraging prospect for investment.

Reflecting these concerns, on October 16th a sharp drop in the share prices of each of the three rescued banks caused outcry against the terms of the rescue package. However, Alistair Darling has been keen to emphasise that the terms of the package are not going to be ‘rejigged’ to allow public money to exit the banks in dividends.

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‘Does your family really know best?’

October 14, 2008 at 1:44 pm

If you have toothache, the chances are you will go to the dentist rather than ask a friend to yank your tooth out. If your boiler breaks down, you would have to be pretty foolish to ask your mother if she could take a look at it. When it comes to financial woes, however, it seems that far fewer of us are interested in seeking advice from a professional, relying instead on family to offer words of wisdom.

Research carried out recently by Norwich and Peterborough Building Society (N and P) shows that only 59% of us would approach a financial adviser for help with money matters. Reasons given for our reluctance varied from not having time, not having enough money to make it worthwhile, not feeling the need, considering age to be a preventative factor, fearing that it would be too expensive, and preferring to be personally in control.

Perhaps our reluctance to take advice is understandable. After all, many of us have lived to regret investing in with-profits endowment policies and moving from company pension schemes into private pension plans, and in many cases we did this on the advice of professional advisers.

Of those who would consider taking professional advice, 93% would unsurprisingly opt for an independent adviser rather than a tied adviser who can only advise on products from the one provider.

N and P point out that financial advisers can advise on a wide range of matters and not just investments. If you need advice on life insurance, pensions or even your will, then a financial adviser can help.

At a time when 57% of us are thinking about money more than we did twelve months ago, perhaps we should stop asking our family and ask the professionals instead.

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‘Local councils may lose millions in Icelandic bank crisis’

October 14, 2008 at 1:42 pm

In the wake of British savers being given guarantees from the Government that they would not lose any of their deposits with the failed Icelandic banks, local authorities and other bodies are seeking similar assurances.

Up to a billion pounds are at stake, with 108 local authorities, 15 police forces, various fire services, Transport for London and many charities having invested in the banks in question. Local authorities with sizeable amounts at stake include Kent, Nottingham, Norfolk, Dorset, and Hertfordshire. Local councils have been cleared of any wrong-doing or recklessness in making their investments abroad. Indeed, they were advised in 2004 by the Government to spread their risks and were informed that the Icelandic banks had a strong credit rating.

At a meeting yesterday, local councils tried to persuade the Government to guarantee their deposits in the same way as has been done for individual investors. However, local government minister, John Healey, was unwilling to give any assurances although he did concede that local councils would not be left “under pressure on their own”.

Meanwhile, the body for charity chief executives has warned of the serious situation facing many charities, including children’s hospices. More than £25 million is at stake with some charities standing to lose 20% of their reserves.

Gordon Brown is taking a strong stance and has indicated his willingness to use anti-terrorism legislation to freeze UK assets belonging to other Icelandic companies, a move described by the Icelandic Prime Minister as a “completely unfriendly act”. A Treasury delegation went to Iceland last week in an attempt to resolve the crisis.

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‘Guarantee for UK investors in Icesave’

October 10, 2008 at 12:43 pm

UK investors in the failed Icelandic bank, Icesave, have expressed their relief at the British government’s pledge to ensure that they do not lose any of their money after the Icelandic authorities failed to meet their obligations.

The parent bank Landsbanki was taken over by Iceland on Tues Oct 7th and the 300,000 UK customers of the internet bank were dismayed to find that their accounts had been frozen. Chancellor Alistair Darling said that there appeared to be no funds in the Icelandic compensation scheme.

Whilst the British scheme would provide £50,000 cover, anyone with investments in excess of that figure would have lost out. The government has decided, however, that due to the exceptional circumstances they would ensure that investors got 100% of their deposits back regardless of the amount, and investors in other Icelandic banks have had their savings protected too.

ING Direct, a Dutch bank, has taken on the deposits of UK customers of Kaupthing Edge and Heritable banks in Iceland. Meanwhile, all British assets of the Landsbanki bank have been frozen by the UK government, which has promised to take legal action against Iceland for its failure to meet its compensation obligations. Geir Haarde, Prime Minister of Iceland, a country which depends largely on its banking system for its economic wealth, has spoken of his commitment to finding a "mutually satisfactory" solution.

Meanwhile, it is not clear whether or not local authorities in Britain who have invested in Icesave will be given similar safeguards to those of individual savers.

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‘Government package to help banking system’

October 10, 2008 at 12:35 pm

Prime Minister Gordon Brown hopes that his rescue package for the banking sector will “put the British banking system on a sounder footing”. The package announced on Oct 8th will make available £400bn worth of fresh cash, but analysts still fear that it has come too late to save the country from a long period of sluggish growth.

Under the new plan, banks will have to increase their capital by a minimum of £25bn and are able to approach the Government for a loan in order to do this. An extra £25bn will also be available in return for preference shares which pay a fixed rate of interest rather than a dividend, and which are paid ahead of payments to shareholders. £100bn will be available from the Bank of England in the form of short-term loans, in addition to the existing facility of £100bn.

In a bid to encourage banks to lend to each other, commercial-rate loan guarantees of £250bn will also be available. Much of the current crisis has been caused by banks not being prepared to lend to one another for long periods.

In order to qualify for the scheme, undertakings have had to be given to the FSA regarding pay, dividends to shareholders and future lending to businesses and home owners. The banks which have signed up to various parts of the rescue package are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland, Standard Chartered and Nationwide Building Society.

The day after the plan was announced it seemed that the measures plus a 0.5% drop in interest rates were not sufficient to stop the stock market slide, and the Prime Minister and Chancellor will be hoping that international action can be agreed to steady the uncertainty.

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‘FSA confirms compensation levels increased to

October 10, 2008 at 11:47 am

If you have been tempted lately to withdraw your life savings and stick it all under the mattress, you can take comfort from the recent increase announced by the Financial Services Authority (FSA) to the limits under the Financial Services Compensation Scheme (FSCS).

Prior to Oct 7th this limit was £35,000, but it has now been raised to £50,000. Although this is welcome news for British savers, who may otherwise have been tempted to move their funds to Irish banks after the Irish Government announced a 100% guarantee for investors’ money, the scheme is not quite as straightforward as it may seem.

With both Bradford & Bingley and Alliance & Leicester now being owned by Santander, HBOS being acquired by Lloyds TSB, and Cheshire & Derbyshire Building Society being taken on by Nationwide, we can all be forgiven for not being 100% sure just who owns what. Those of us who have been conscientious in spreading our risk may well find that we now have too much with the one bank to benefit from the FSCS.

The significant words in the FSCS regulations are “authorised institutions”, and if a bank relies on its parent company’s authorisation then you could be in trouble. For instance if you have accounts with Halifax and Birmingham & Midshires, you would only be entitled to one payout of £50,000. This is because they are both owned by HBOS and therefore rely solely on its authorisation. If on the other hand you have accounts with Alliance & Leicester and the Abbey, you would be entitled to two payouts despite the fact that they both come under the Santander umbrella, since they have their own authorisations.

It’s undoubtedly a worrying time for savers but we should of course bear in mind that a major bank has never gone bust in the UK (well not since 1866) and that the mattress is really a much worse risk than a bank!

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‘Couples losing out for the sake of privacy’

October 8, 2008 at 3:36 pm

Three out of four couples in the UK have some sort of joint bank account and yet one in three of that number chooses not to share a current account, even although this means in many cases that they miss out financially.

Historically, there has not been much benefit involved in having a joint current account but in the current financial climate, when everyone should be ensuring that their money works hard for them, it is well worthwhile exploring accounts such as Lloyds TSB’s Vantage account which pays up to 5% interest provided at least £7,000 is paid in each month – easier to achieve if two salaries are paid in rather than one.

A recent survey, carried out by Lloyds TSB, has given an interesting insight into the reasons behind couples’ decisions on whether or not to have a joint account. 90% of those who do have a joint account do so primarily because they feel it makes it easier from a practical point of view to pay for household and other joint expenses. However, almost all of them feel too that it is philosophically right to have a joint account if you are part of a couple. Just over half questioned have a joint account as they feel it helps them to save as a couple.

Of those who have chosen not to pool their resources, just under 40% do not trust their partners to spend responsibly or alternatively do not want their partners to know how much they earn or how they spend their money.

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‘Money mules on the rise’

October 3, 2008 at 11:37 am

The concept of drugs being brought into the UK illegally by so-called drugs mules is not a new one, but fewer people will have heard of money mules. However, according to figures from APACS (The UK Payments Association) this is a growth “industry” for the unscrupulous or naive.

The association has detected a huge increase in the number of adverts for money transfer agents as they are often called. Criminals trying to move their ill-gotten gains from one country to another are often unable to do so because of safeguards in the banking system and so recruit people to “launder” the money. The mules receive the funds through their own bank accounts and then transfer it by wire transfer into the criminal’s account for a commission.

Almost 900 adverts were detected by APACS in the first six months of 2008, a staggering increase of around 700 compared with the same period in 2005. They have produced a leaflet available to download from their website advising the public on how to avoid being caught out. It is a serious offence to become caught up in, even if you have not personally been involved in any illegal activity per se, but just allowed your account to be used for this purpose. If you have given your bank account details to someone you do not know and are concerned that you may have unwittingly become involved, you should contact your bank for advice.

There’s no such thing as an easy way to make money and, if someone makes you an offer that seems too good to be true, it probably is!

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