Salmond: I'd have acted to save HBOS

ALEX Salmond last night triggered a bitter cross-border row over the HBOS crisis by suggesting that if he had been in charge of an independent nation, Scotland's oldest bank could have been saved from takeover.

The First Minister claimed Gordon Brown and Alistair Darling stood "idly by" as a deal was done to merge HBOS with Lloyds TSB, failing to give the Scottish institution the backing it needed.

Salmond said he would have advanced billions of pounds of credit to HBOS – which employs 17,000 people north of the border – in a bid to ensure its short-term survival while the financial storm raged.

The loan of public money – possibly as much as £100bn – would have helped quell market fears that the bank did not have the cash to meet its mortgage liabilities. Salmond's aides say that in an independent Scotland, a Scottish central bank would have lent the cash to ensure the company was safe.

Salmond said: "No country can insulate itself from mergers and takeovers, but very few countries would so idly stand by and allow their oldest, key financial institution to be left in the position that HBOS was left in last week."

Salmond also claimed that he would stand a better chance of convincing Lloyds TSB bosses to keep their headquarters in Scotland if the country was independent. With full powers, Salmond says he would cut corporation tax, giving such firms an incentive to stay north of the border.

But the First Minister's comments triggered an angry response from Downing Street insiders who accused Salmond of "economic illiteracy".

Bank of England sources also said that bailout funds were available if HBOS had wanted them, but they were not called for. Senior executives at Lloyds TSB said the takeover deal was done for "commercial reasons" and not out of panic.

Darling said: "There was no request for a line of credit and, frankly, things were way beyond that. They needed a permanent commercial resolution and that is what we achieved."

In another development yesterday, the US government revealed it is preparing to spend $700bn (£382bn) buying up "bad" mortgages as part of a massive financial bail-out to tackle the credit crisis.

The US Treasury is proposing the fund to buy back a large proportion of the bad debt in the US mortgage market. Business insiders fear the total cost of the bail-out could rise to as much as $1 trillion (£545bn) or $1,000,000,000,000.

The row over HBOS intensified yesterday as one MSP said she would contact police and ask them to investigate claims there had been an abuse of market rules as the merger was being discussed.

Keith Skeoch, chief executive of Standard Life Investments, said there had been a delay before the talks were formally announced, a possible breach of stock market rules which dictate that a formal announcement must be made. Had such an announcement been made before Wednesday morning, many believe that the sudden drop in HBOS's share price which triggered the takeover might have been averted.

Lothian MSP Margo MacDonald yesterday said she would be contacting the police. She said: "It has been alleged that the stock market rules have been broken. If the merger had been made public, HBOS's shares would never have fallen as they did. All we know for

sure is that now this company will make billions of pounds of cash from rationalising jobs at a time when people are really facing the pinch."

Last night, Salmond also said that the merger was still not a "fait accompli" until shareholders had given their approval. He said that the merger – which was only disclosed through the BBC on Wednesday as HBOS's shares fell through the floor – was "highly unusual".

However, Salmond said that after the Financial Services Authority had declared that HBOS was in good stead last week, the Government should have backed it up. "The expectation would be that it would be backed up… your financial institutions should stand behind that institution. That is what they are there to do."

He said the job of persuading Lloyds TSB to stay in Scotland "would be a lot easier" if Scotland were independent. "If I was able to go in and point out that corporation tax was significantly lower in Scotland than it was in London then I suspect the discussions would end in a handshake, and wouldn't take all that long."

Salmond's claims were attacked by Downing Street. One source said: "Alex Salmond is either economically illiterate or he knows he is being disingenuous. The facts of the matter are that there were fundamentals in the bank that had to be addressed. He knows that without the UK Government a great Scottish institution would have gone under."

Treasury officials say there was no alternative to the merger, insisting such was the condition of HBOS, it had to make a deal. But that was disputed last night by the Bank of England's former chief adviser, Sir Charles Goodhart, who said that if the Government had not been so slow to extend its special liquidity scheme – which offers emergency cash for stricken banks – HBOS might have refinanced its mortgages and avoided having to be taken over.

The focus will now shift to attempts to save HBOS jobs in Scotland, as Salmond chairs a summit with the Scottish Council for Development and Industry (SCDI). On Tuesday, Salmond will hold private talks with executives from Lloyds TSB. In what may be seen as a snub to Salmond, Scotland on Sunday understands that Lloyds TSB chairman Sir Victor Blank will not attend the talks.

Salmond is to call for key functions of the new super-bank, including its lucrative corporate and investment wings, to remain in Scotland. Writing in Scotland on Sunday today, Salmond says: "One of the reasons that the Scottish economy to date has been so much stronger in resisting financial downturn is precisely because of the successful companies supported by innovative investment from the Bank of Scotland."

Scottish Secretary Des Browne said that he, too, would be working this week to secure Scottish jobs. "I want to reassure the families of those who work at HBOS and Lloyds TSB who fear for their jobs that the Government is doing all we can to help," he said. "I am in discussions with colleagues and we can all take some comfort from the commitment to keep the Edinburgh headquarters and focus on preserving Scottish jobs. It is important that we all focus on that to focus on the global economy challenges as they are."