KEY POINTS:
Suddenly life is exciting for Lloyds TSB.
For years, Britain's biggest current account provider was the poor relation of British banking as its pedestrian growth in retail and mid-level corporate banking was outshone by fast-growing rivals riding the wave of cheap credit and globalisation.
Eric Daniels, the American
chief executive, sought and received little attention. His talk of growing by building better understanding of his British customers seemed dull compared with the rapid growth of rivals such as Royal Bank of Scotland and HBOS.
But yesterday Daniels and his chairman, Sir Victor Blank, were able to claim vindication when they unveiled the takeover of HBOS for a bargain price.
Lloyds relied chiefly on its retail deposit base for funding and was financing its lending easily in the wholesale money markets when necessary.
By contrast, HBOS had been in danger of collapsing as its slumping share price drained the confidence of wholesale and retail depositors.
Andy Hornby, the young HBOS chief executive, was forced to sell to Lloyds, one of the big four British banks that he had vowed to compete with through aggressive pricing and marketing.
There was no disguising Lloyds' satisfaction in achieving what it thought was out of reach - massive in-market scale that could be used as a launchpad for the international expansion it had been seeking for years.
"We are creating a great British bank that will be capable of international [expansion] in due course," Sir Victor said.
Each side said it had thought about the possibility of combining with the other for years. They said Daniels and Hornby had tossed the idea around informally. HBOS had even been advised by its lawyers that a bid for Lloyds - when HBOS was the bigger bank - had a 60 per cent chance of success.
Things started to creak into action six weeks ago.
"Eric and I had a conversation in my office and we thought it was an appropriate moment to give Andy a call and have a conversation," Sir Victor said.
But it was clear almost all the work on the deal was done this week as HBOS's shares went into freefall.
At a gathering held by Citigroup, the US financial giant, at Spencer House in London's opulent St James's Place, Prime Minister Gordon Brown assured Sir Victor that if Lloyds wanted to rescue HBOS the Government would see to it that competition concerns would not be a bar.
The Government's waiver was the key to the deal. Sir Victor said HBOS could not have withstood the uncertainty of a year-long probe by the Competition Commission.
Lloyds nearly bought Northern Rock before it imploded but was refused £30 billion ($80 billion) of liquidity guarantees by the Bank of England.
After yesterday's press conference, Hornby went for a sandwich with Sir Victor while Daniels left the building of Dresdner Kleinwort, Lloyds' broker, lighting a cigarette as soon as he got outside the door.
How did it feel to do this deal after being mocked as boring for so long?
"Oh we're still boring," he grinned.
- INDEPENDENT
