24 August, 2009

Great Britain Bank Mergers & Acquisitions (HBOS)

Photo: A Bank of Scotland 100-Pound Sterling banknote from 1997. Unlike England, in which only the (central) Bank of England can issue paper currency, Scotland has authorized commercial banks to issue banknotes since 1695.

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In January 2009, HBOS plc was acquired by Lloyds TSB Group plc to form the new Lloyds Banking Group plc. Transactions that happened after January 2009 would be listed under the Lloyds Banking Group page.

HBOS plc

Halifax plc (formerly Halifax Building Society)

During the Industrial Revolution, hundreds of thousands of surplus farm labourers flocked to industrial towns to find jobs in the factories. Many towns experienced severe housing shortages and other social issues. The concept of "building society" was born under which working men pooled their (often minimal) savings together to form a club where loans were offered to the members to build or buy their own houses, one at a time. The lottery system was often used to decide who got to borrow first (to obtain the fund) to buy their property. As the original borrowers repaid the loans gradually, the funds were offered to other borrowers.

There were two types of building societies. In the "terminating building society" form, the mutually-owned building society was disbanded after the last member was housed. In the "permanent building society" form, clients could continue to deposit their savings into and borrow from the concern even after every original member had bought his property and repaid the loan. It was under these circumstances that the Halifax Permanent Benefit Building Society was established in Yorkshire in 1852. Over the decades, the permanent building societies have evolved into co-operative banks offering deposit, personal lending, mortgage and credit card services for the working class.

In 1997, the mutual member-owners of Halifax Building Society voted for demutualization. Its 7.5 million members became shareholders of the lender and Halifax plc was listed on the London Stock Exchange.

The Governor and Company of the Bank of Scotland

In 1694, the Bank of England was created to borrow money from the wealthy (including co-monarchs William and Mary) to finance England's war against France. In 1695, the Scottish Parliament decided to pass an act to establish its own public bank to promote Scotland's trade. Bank of Scotland is the only bank to have ever been established by an Act of the Scottish Parliament, and today remains the only business created by the Scots Parliament still in existence.

Bank of Scotland was a monopoly from its founding in 1695 until 1727, when rival Royal Bank of Scotland was finally permitted to open for business. Since its very beginning, Bank of Scotland has been issuing Scottish banknotes.

In 1954, the Bank of Scotland took over the Union Bank of Scotland (founded in 1845). Then in 1971, the bank acquired the British Linen Bank (founded in 1746) from Barclays Bank.

Recent transaction(s):
  • In 1995, Bank of Scotland bought 100% of Bank of Western Australia (trading name BankWest) from the Western Australia state government. As part of the purchase agreement, 49% of BankWest was offered to the public in 1996.
  • In 1996, the then Halifax Building Society bought the newly-demutualized insurer Clerical Medical for GBP 800-million. Clerical, Medical & General Life Assurance Society was founded by a London physician in 1824.
  • In 1999, Bank of Scotland launched a hostile, GBP 21-billion (USD $34.3-billion) bid for its much bigger English rival National Westminster Bank, but eventually lost the bidding war to The Royal Bank of Scotland.
  • In 2001, Halifax plc bought the world's oldest mutual insurer Equitable Life for GBP 1-billion. Equitable Life was established in 1762.
  • In 2001, Bank of Scotland merged with Halifax plc in a deal worth GBP 26.0-billion (USD $40.0-billion). The newly combined holding entity was known as HBOS plc, though the brands Halifax and Bank of Scotland remained.
  • In 2003, HBOS' Scottish Western Australia division acquired the 43% of BankWest that it didn't yet own for GBP 430-million (USD $688-million). BankWest became a wholly-owned subsidiary of HBOS.
  • Following the burst of the U.S. housing bubble in 2007, losses from the collateralized debt obligations (CDOs) soared to billions of dollars around the world, and the inter-bank credit market froze during the summer of 2008. On 2008-09-17, following days of widespread fears that HBOS was insolvent, the bank announced that it was in advanced discussions to be bought out by Lloyds TSB Group. According to the BBC, British Prime Minister Gordon Brown and other senior officials brokered the merger talks, and the government would over-rule any anti-competitive objection raised by the Competition Commission resulting from a Lloyds-HBOS merger.
  • Within 24 hours of their announcement, Lloyds TSB agreed to acquire HBOS for GBP 12.2-billion (USD $22.29-billion, Eur 15.36-billion) in stock. HBOS shareholders would receive 0.8333 share of Lloyds TSB for each HBOS share. The new bank would have more than 3,000 branches and more than 140,000 employees, though branch closures and layoffs were expected. Existing Lloyds TSB shareholders would own 56% of the new bank, with the rest being owned by former HBOS shareholders. The new Lloyds TSB would be the mortgage market leader in Britain with a 28% market share. Lloyds TSB's GBP 12.2-billion offer underscored how much HBOS shares had collapsed: before the 2008 credit crisis began, HBOS had at one time a market value of more than GBP 55.0-billion.
  • In 2008, Commonwealth Bank of Australia acquired BankWest (Bank of Western Australia) and insurer and asset management firm St. Andrew’s Australia Pty. Ltd. from ailing HBOS for AUD $2.1-billion (GBP 808-million, USD $1.4-billion) in cash. HBOS had been close to financial insolvency and had just agreed to a sale to rival Lloyds TSB Group weeks earlier. HBOS would also receive AUD $360-million from a return of excess capital in BankWest, raising the total sale proceeds to AUD $2.5-billion (GBP 963-million, USD $1.66-billion).
  • As more major financial institutions failed in the U.S., Britain, Belgium, Germany, and Iceland, investors sold off financial assets around the world including stocks, commodities, short-term commercial papers and corporate bonds. Most major stock markets fell by 15% to 20% in the trading week that ended on 2008-10-10. During an emergency summit held in Washington D.C., the world’s major finance ministers unveiled a plan under which the national governments pledged to bail out any major banks in financial difficulties and to provide unlimited loan guarantees for inter-bank lending, in order to restore confidence in the panicky financial markets. Under the partial nationalization scheme, the British Treasury provided GBP 37-billion (USD $64-billion, Eur 50-billion) to The Royal Bank of Scotland Group, HBOS and Lloyds TSB in return for holdings in the three banks. Barclays opted out from the government bail-out plan, but promised to raise GBP 6.5-billion on its own. HSBC was at the time not in need of new capital.
  • In late 2008, the British government injected GBP 11.5-billion into HBOS in return for GBP 8.5-billion of HBOS ordinary shares and GBP 3.0-billion of preference shares. The government also injected GBP 5.5-billion into Lloyds TSB in return for GBP 4.5-billion of Lloyds ordinary shares and GBP 1.0-billion of preference shares. Meanwhile, Lloyds TSB revised the terms of its offer for HBOS from 0.833 Lloyds TSB share for each HBOS share to 0.605, reducing HBOS’ value to GBP 7.7-billion (USD $11.13-billion) from GBP 12.2-billion (USD $22.29-billion).
  • In January 2009, Lloyds TSB completed the HBOS acquisition and the new Lloyds Banking Group became the bank with the most market share in Britain. The British Treasury's stake in HBOS was converted to Lloyds Banking Group shares. Following the combination, 43.5% of Lloyds Banking was held by the British government, 36.5% was held by the former Lloyds TSB shareholders, and the remaining 20% was held by the former HBOS shareholders.
  • By August 2009, total write-downs on bad loans at the former HBOS divisions since the beginning of 2008 had reached over GBP 20-billion (USD $34-billion).

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