SERIOUS doubts about Lloyds TSB's takeover of HBOS emerged last night after a leading City figure suggested there had been an abuse of the market rules as talks were being held.
Keith Skeoch, the chief executive of Standard Life Investments, said there had been a delay before the talks were formally announced. Stock market rules dictate companies in advanced talks should make a formal announcement to the stock exchange, with trading in their shares being suspended.
Were these critical rules broken? The intervention by Mr Skeoch, the head of one of Britain's biggest institutional investors, adds to the growing furore over the circumstances of the scrambled bid for HBOS as its shares were in freefall.
Had news of the talks been announced earlier, the dramatic plunges of this week – and particularly of Wednesday morning when the shares crashed by more than 50 per cent – could have been avoided.
If the share crash was avoidable, and HBOS had been able to survive until Thursday night, when news of the United States government's plan to buy toxic debt came through, the bank could still be independent.
That news from across the Atlantic yesterday sparked a surge in share values, with HBOS's stock rocketing by 33 per cent.
Mr Skeoch was angry that the market had learned of the HBOS/Lloyds TSB talks from the BBC, and even then there was a delay of several hours before they were confirmed.
When asked in a BBC Radio 4 interview if it was an abuse of the market, he said: "There's an issue there, and I think we should be asking ourselves who was in the possession of that information and why it wasn't released to the market and why it was made available to the market via the BBC."
While the Bank of England has refused to comment officially on claims it dithered over whether to step in, a source there has said a liquidity facility was available at an unlimited level.
The source has raised further questions by suggesting the deal was a "purely commercial decision" and nothing to do with HBOS's survival. This is crucial, as a commercial deal would not have taken place in normal circumstances; the government waived competition rules only because it was an exceptional situation.
Archie Kane, the chief executive of Scottish Widows, which has been owned by Lloyds TSB since 1999, echoed the Bank of England source's assessment of the takeover, saying:
"This deal was done for commercial reasons. We would not have got into the situation otherwise. We operate on behalf of our shareholders, we do the best thing for our key stakeholders."
The controversy follows anger over the role of short selling in HBOS's demise. Fingers have been pointed at the Financial Services Authority (FSA) for failing to stop the practice quickly enough.
The developments have resulted in a formal request that there is an FSA investigation into the deal.
The SNP MSP Alex Neil, a former economic consultant, has written to the FSA, London Stock Exchange and the Bank of England demanding an inquiry into the alleged abuse of the market.
"It appears that there has been a serious breach of stock market rules, which must be investigated," he said.
On the controversy over the Bank of England, he added: "If what appears to be coming out of the Bank of England is true, and this was a purely commercial decision, then we have to ask why HBOS is being sold. If it is true it needed to be rescued, then both the Bank of England and FSA failed HBOS."
HBOS has strongly denied delaying the announcement to the stock exchange. A spokesman said: "We take our market disclosure responsibilities very seriously. We believe that our statement was issued as expeditiously as possible."
The row erupted on a day when the US government's decision to effectively nationalise bad debt stabilised the financial sector, leading to huge rises in banks' shares.
This has led to further suggestions the Treasury had been too eager to push through the HBOS takeover.
Keith Bowman, a market analyst with Hargreaves, said: "Maybe it was rushed and there are doubts over whether the merger will actually solve the problems. But on Tuesday, the priority was the health of the banking system, not of HBOS."
Sources close to Alistair Darling, the Chancellor, insisted that, despite the claims coming from the Bank of England, if the takeover deal had not been put on the table, there would have been a run on HBOS and it would have gone under.
The UK Shareholders Association (UKSA) has questioned the need to rescue a bank that, to the outside observer, and using financial information provided by HBOS, appeared to be profitable. It said that if indeed it was a "good deal" for HBOS shareholders to sell the bank at about the current market price, the directors had a lot of explaining to do.
The doubts have put into question whether HBOS shareholders will back the merger.
A spokesman for the UKSA, said: "Only if HBOS shareholders receive an adequate explanation that convinces them that a sale of the bank was essential should they approve the takeover by voting for it."
Bryan Johnston, of Bell Lawrie, said: "Hindsight is a wonderful thing, but the situation looked pretty bad on Tuesday. Of course, shareholders at HBOS may reject this deal, but I think they would be very unwise."
Swinney seeks GlobalScots' helpHBOS opinion: Keith Skeoch, Chief Executive of Standard Life InvestmentsHBOS: Lloyds TSB chairman Victor Blank talks about the dealThe full article contains 932 words and appears in The Scotsman newspaper.
