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HBOS FACES £5BN SUB-PRIME LOSSES

DONE DEAL: Daniels' bank is fully committed

Monday November 3,2008

By Peter Cunliffe, Deputy City Editor

HALIFAX Bank of Scotland is expected to report billions of pounds of writedowns this week, underlining the urgency of its planned takeover by Lloyds TSB.

The loss of as much as £5billion against investments related to U.S. sub-prime mortgages is due to be announced as early as today when the two banks publish trading statements.

They will come amid claims that an overseas bank is considering making a rival offer that would blow apart the proposed £12billion tie-up with Lloyds TSB.

Analyst Alex Potter at broker Collins Stewart expects writedowns of £4.9billion for the second half of the year, on top of £5billion for the first half.

Details of the writedowns follow revelations at the weekend that a mystery bidder is circling HBOS. Scottish secretary Jim Murphy had talks with Jim Spowart, a former HBOS executive and founder of its Intelligent Finance internet banking business, about an alternative offer from abroad.

There has been increasing concern about job losses in Scotland after the merger with Lloyds TSB, and Spowart said a rival takeover could mean fewer posts being lost. He declined to name the bank, but said: “This is a genuine, genuine interest. I can’t emphasise that enough at this stage and just let’s hope for Scotland this is another alternative that we’re able to look at.”

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Lloyds TSB, led by chief executive Eric Daniels, said it remained fully committed to the deal.

HBOS said: “We have a recommended deal with Lloyds TSB which brings certainty and tangible financial benefits to our shareholders.”

David Buik, an analyst at BGC Partners, said it might be too late for a rival bid following the Government’s approval of the HBOS-Lloyds TSB merger on Friday.

* Separately, Royal Bank of Scotland is expected to report tomorrow writedowns of as much £9billion for the second half — on top of £5.9billion losses in the first half.

RBS is due to publish the prospectus for its £20billion fundraising as part of the Government’s rescue package for the sector and its new chief executive Stephen Hester is expected to outline his strategy for repairing the bank’s balance sheet.

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