Lloyds TSB in HBOS Takeover
Following the weekend’s dramatic events in the US, the UK’s HBOS saw its share price dive. Lloyds TSB has stepped in to buy out HBOS. Meanwhile inter-bank lending rate Libor has jumped and fixed mortgages are bound to rise.
Things are happening fast in the world’s stock markets. First Lehman Brothers, then Merrill Lynch and AIG – all in the US – and now HBOS is set to be taken over by Lloyds TSB in the UK.
With shares falling this week, HBOS saw its own shares shed more than half their value. So, despite having more savings and more assets than Lloyds, HBOS falls victim to its large mortgage book and the exposure that can now bring. The price of HBOS shares will receive will be 232p, more than the Wednesday closing price of 147.1p. Under the terms HBOS shareholders will receive 0.83 Lloyds shares for every HBOS share.
The new larger Lloyds will end up with one third of the UK mortgage market, but there will be no question of a competition question arising as the government is backing the rescue deal.
Meanwhile, fixed rate mortgages are set to become more expensive again. Having come down in the last couple of months since peaking in July, fixed rates will suffer from the fact that the inter-bank lending rate (Libor) is on the rise again. In fact, it jumped from 5.49% to 6.79% after the weekend, reaching its highest level since February 2001. Banks are making keeping their money a top priority in the current crisis.
Experts are suggesting that both mortgages and loans will be harder to find after the latest round of blood-letting in the markets.
Although the Bank of England may cut the base rate at least once before the end of the year, it is hard to see banks passing on the full interest rate cut to borrowers. The Bank cut should normally help to reduce variable rates, including starting tracker rates. Those already on trackers will benefit.
The lack of affordable mortgages has been blamed for the stagnation of the housing market, so it is likely that that will continue for some time yet.
Lloyds said that the takeover of HBOS was part of its strategy to become the UK’s leading finance company. It said that it intends to increase the number of competitive mortgages on offer for first-time home buyers.
