KEY POINTS:
Carnage in the banking sector spread to Britain yesterday as Lloyds TSB agreed a £12 billion ($32.82 billion) emergency takeover of Halifax Bank of Scotland in a deal that could lead to 40,000 job cuts and the closure of hundreds of branches.
Prime Minister Gordon Brown intervened to smooth the deal's passage amid fears that the alternative would have been bankruptcy for HBOS or nationalisation. The Government believes it can get the merger past competition rules because of the severity of the situation.
Ministers told bosses in London's financial district that HBOS, with 15 million savers and 20 per cent of the entire mortgage market, was simply too important to be allowed to collapse.
Two out of every five UK households are customers of the HBOS group, which holds £1 in every £5 saved in Britain.
The merger, rushed through in under two days, is likely to lead to large-scale job losses and branch closures. HBOS employs more than 65,000 people in Britain and has 1100 branches, while Lloyds TSB has 70,000 staff and 1900 branches.
In 2000, Royal Bank of Scotland cut 18,000 jobs when it bought NatWest. Industry sources said the cuts would be far greater from this deal, raising financial sector job cuts to an estimated 110,000.
Graham Goddard, deputy general secretary of the union Unite, said last night: "Unite is calling for urgent talks at the highest level with the banks. We will not accept any compulsory redundancies as a result of this merger. The major job losses in the sector are fundamentally caused by precarious investments and transactions by bankers pursuing large rewards. Staff working in the financial services must not pay the price for corporate greed."
Scotland's First Minister, Alex Salmond, launched a scathing attack yesterday on the "spivs and speculators" who he said had forced a "shotgun marriage" between the two banking groups.
He said: "We should not have situations where well capitalised, properly funded financial institutions are subject to incredible speculative attack, and that drives them into decision-making which they otherwise might not have done."
HBOS' 2.1 million small shareholders are also set to lose. The deal, paid in Lloyds stock, will be worth £2.32 a share, less than a quarter of the pre-credit crunch price.
HBOS, whose shares had lost half their value in the past five trading days, closing at £1.47, has the biggest small-investor base in the country, most of whom got their shares when Halifax demutualised in 1997.
Roger Lawson of the Shareholders Association said: "It is very questionable whether HBOS shareholders should accept any cheap deal. Clearly the Government would like an arranged marriage."
The deal would be the end of Halifax, a former building society whose roots go back to 1853, as an independent company.
In 2001, it merged with Bank of Scotland, founded in 1695, to take on Britain's big four banks but that dream was shattered as the credit crunch made HBOS pay for its massive expansion and reliance on debt markets.
The bank is Britain's biggest mortgage lender and has nearly a third of the country's buy-to-let and self-certified home loans. It has also lent and invested heavily in the commercial property sector, and the bank relies on wholesale markets for nearly half its funding.
The deal would make HBOS the third UK mortgage lender to surrender its independence this year. Northern Rock was nationalised in February while Alliance & Leicester shareholders voted this week to accept a buyout from Santander.
HBOS
* Britain's biggest savings and mortgage bank.
* Created in 2001 from the merger of Halifax and Bank of Scotland.
* Employs more than 65,000 people in the UK and has 1100 branches.
* Shares had lost half their value in the past five trading days.
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