HBOS confirms in takeover talks with Lloyds TSB

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HBOS confirms in takeover talks with Lloyds TSB

17/09/2008 13:16

LONDON (Reuters) - HBOS confirmed on Wednesday it was in advanced talks that may lead to a takeover by domestic rival Lloyds TSB .

"In the light of market speculation, the board of HBOS confirms that it is in advanced talks with Lloyds TSB Group which may or may not lead to an offer being made for HBOS," HBOS said in a statement.

A deal would mark another chapter in a dramatic shake-up of the global financial landscape as firms with weaker balance sheets or funding strains are swallowed by stronger rivals.

A deal could be attractive for Lloyds as it could cut costs, increase market shares and lift margins to offset the prospect of higher bad debts as the economy worsens, but this would depend on the terms of any deal, analysts said.

The talks are being encouraged by both the Treasury and UK regulator the Financial Services Authority, the BBC said.

HBOS has come under mounting pressure as it is more reliant on wholesale markets to fund its business than other UK banks, and the cost of borrowing funds in the interbank market continues to rise as the credit crunch has made banks reluctant to lend to each other.

That raised the risk that savers with HBOS could withdraw funds and create a bigger problem, analysts said.

HBOS and the FSA sought to soothe concerns about HBOS’s funding position, but had limited success.

"We are satisfied that HBOS is a well capitalised bank that continues to fund its business in a satisfactory way," the Financial Services Authority said in a statement.

A spokesman for HBOS said the bank was "a strong financial institution with significant capital resources at its disposal" and it continued to fund itself in the wholesale markets.

(Reporting by Paul Hoskins)

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