Q: What happens if Lloyds TSB shareholders reject the HBOS takeover?
One of the few bargaining chips the City still has with the government is in deciding whether to press ahead with the arranged marriage between HBOS and Lloyds TSB. Shareholders in Lloyds have to vote to agree to take over HBOS and may baulk if they feel they are losing too much in the deal. If this happens, the government may have no choice but to take HBOS into full state ownership as it did with Northern Rock and Bradford & Bingley. This would dramatically increase the cost of the bank bail-out to taxpayers and could reignite panic over the solvency of other banks. For this reason, many expect the Treasury will have to reopen negotiations with some leading institutional shareholders over the question of dividend policy.
Interesting, however….it\’s not actually the government in Westminster that gets to decide this.
It\’s the government in Brussels that has already decided this point. Neelie Kroes has said that dividends cannot be paid until the preference shares are redeemed. And that\’s it.
We can negotiate away all we like but unless she changes her mind we\’re stuck with it.
Do you happen to know the position on the government capitalisation, Tim? Is the Lloyds-TSB government funding conditional on the HBoS takeover thereby suggesting that HBoS really require the sum they’ve been earmarked plus the Lloyds sum – given the indications previously that lloyds TSB was more stable and better capitalised? IT strikes me that lloyds could have a punt at the market – but HBoS after the dud rights issue would have no chance.
I’ve been hunting around for stuff on the terms of the deal but cannot find material on this aspect.
Best wishes
Scott
PS I note that some SNP candidates are hinting that Lloyds is in as bad a financial state as HBoS (see Calum Cashley as one example in his blog). This strikes me as cobblers – but is a narrative being run for what seems to be clear political motives.
AFAICT Scott is exactly right.
On the origial post, whilst it might be true de jure, it certainly isn’t true de facto – if Brown and Darling said tomorrow that dividends could be paid before the preference shares were repaid, then there is no way in hell that Kroes or anyone else in Brussels would or even could do anything about it.