Salmond fury at 'bunch of spivs' behind bank crisis

ALEX Salmond, the First Minister, launched a blistering attack last night on the "spivs and speculators" who had prompted the HBOS crisis.

He said he had been in talks with senior executives from the Scottish banking giant and Lloyds TSB, and pledged to attempt to ensure that any new bank would continue to be based north of the Border, while minimising the number of job losses.

Mr Salmond has cancelled his trip to the Ryder Cup to "represent the Scottish interests", as the merger between the banks looks set to be confirmed today.

"My experience of mergers is that the key strategic decisions are taken early," said Mr Salmond, a former economist. "That is why I feel I need to be here to represent the Scottish interest."

He said he had made the government's position clear to those involved in negotiations and hit out at the speculators who were putting "the quality of life and jobs of hundreds, thousands and millions of people across the world at risk" through "short-trading" – where investors make money by effectively betting on the price of a company falling.

"There's going to be a huge job of advocacy in the Scottish interest. I have spoken to senior officials in both banks today and made it clear that we will be making sure these representations are made," Mr Salmond said.

Ripping HBOS out of Scotland would likely mean the end of the Bank of Scotland, which formed HBOS when it merged with Halifax in September 2001.

At that time, it remained a separate public limited company, but it is unclear whether it would continue to do so.

If not, the bank would likely lose the power to print its own notes, which it has had since being established by government charter in 1695. This would be a major blow to the Scottish currency and national identity.

HBOS's share price plummeted earlier in the week in the wake of the collapse of Lehman Brothers, the US investment bank. Traders began offering shares they did not own at reduced prices in the hope the value would then drop – "short-selling".

Mr Salmond said: "I have not a word of criticism for the two banks, but I have to say that if HBOS, which has had a clean bill of health from the financial regulators, has been driven to this point through this sort of speculation then there is no financial institution that is not at risk.

"I am very angry that we can have a situation of a bank being forced into a merger by a short-selling bunch of spivs and speculators in the financial markets.

"We should not have situations where well-capitalised, properly funded financial institutions are subject to incredible speculative attack, and that drives them into decision- making which otherwise they might not have done."

His fury echoed comments by Vince Cable, economy spokesman for the Liberal Democrats, who also accused hedge-fund managers of "hunting in packs" to undermine HBOS.

But the shadow chancellor, George Osborne, said the practice of short-selling was "more of a symptom of the problem than the cause", which was people's uncertainty about the soundness of financial institutions.

Mr Salmond said he believed the Royal Bank of Scotland was not under as great a threat from takeover because it was an international organisation that could call on support from regulators around the world and was not as dependent on wholesale money as HBOS.

He added that there was a need to cut taxes and increase public spending to re-inflate the economy and regretted that the Scottish Government's powers would not allow him to do that because it was unable to borrow.

The Scottish Lib Dem leader, Tavish Scott, said: "The enormous short-term financial pressures have understandably led to these talks (between Lloyds and HBOS] but customers need to know that banking regulators are on their side, because a merger of these two companies will mean less competition."

For the Tories, Derek Brownlee said: "Whatever the outcome, we want to see Scotland maintain a strong and stable presence in the global financial sector."

New player would possess major muscle but may retreat from the high street

THE institution created by a fusion of Lloyds TSB and HBOS would take up formidable space in the marketplace and – perhaps to a lesser extent – on the high streets.

While there will undoubtedly be job losses – estimated in some quarters to be in the region of 40,000 – those who keep their posts will likely benefit from being part of a very powerful institution.

Ken Murray, chief executive of Blue Planet Investment Management, said the merger would create £9 billion a year in profits.

He said: "The efficiency gains will be enormous. You don't need two banks on every high street in Britain; invariably people will lose their jobs as always happens in this situation."

The highest-profile scalp which could be taken is Andy Hornby's, the CEO of HBOS. He is already under fire for the embarrassing rights issue earlier this year, which bombed, leaving underwriters with the vast majority of the shares.

There are also major implications for Scotland's infrastructure, economy and jobs market, and those of Edinburgh, where HBOS is based.

Alex Salmond, the First Minister, is in talks to ensure the HQ remains north of the Border.

However, Mr Murray said: "I don't know if this is a loss for Scotland. In reality, the head office was already in the South.

"But this is a British bank, and Lloyds and HBOS are big players in Scotland. It's in everybody's interests to have strong people running strong banks. Banks are reliant on the confidence of markets. If you undermine that confidence then you make it very difficult for that company to carry on in business. It's particularly hard when the rumours are simply not true."

Bryan Johnston, of Bell Lawrie, said the merger would lead to "a muscle of a name to start with".

He said: "We will end up with a very powerful bank with a massive asset base. We will inevitably have some consolidating of the workforce."

But he said the loss of traditional physical banks was not a major implication.

"I think the days of the high- street bank are on the way out anyway," he said. "More and more people bank online so the physical presence is probably only relevant to non-physical elements of banking, such as investment banking.

"I think the banks will go the way of the post offices."

ANALYSIS

Reputation for trust worth nothing in the global marketplace

A TAKEOVER of HBOS by Lloyds TSB is good news for HBOS customers and depositors, and for the stability of the banking system. But in the long run, it is bad news for the Scottish financial industry and the economy for it may cost up to 4,000 Scottish jobs.

It is good news for Gordon Brown's government, for if Lloyds TSB had walked away from the deal, as it did from Northern Rock, that would have sent a signal HBOS was too risky, and have caused a disastrous Northern Rock-style run on the bank, forcing the government to nationalise it. After a number of years, once stability had returned, it would then be sold to another bank. So takeover was always a foregone conclusion; it has just happened sooner rather than later.

It is a bad blow for Scotland. The financial sector has collectively marketed itself as being more trustworthy and a lot less racier than those spivvy types in the City. But the current plight of HBOS shows that such a reputation, if it was ever taken seriously, is worth nothing in the international marketplace.

While lots of depositors will breathe a big sigh of relief at a takeover, lots of employees – 140,000 of them in the UK between the two banks – will become extremely nervous about their jobs.

That goes right up to board level. The HBOS board, including chief executive Andy Hornby, are likely to be among the first to get the black bin-liner. They have made seriously heavy weather of the Halifax/Bank of Scotland merger and made the disastrous mistake of replacing James Crosby with Mr Hornby when the former started reining in mortgage lending, a wise strategy it now turns out. Their attempt to raise £4 billion capital through a share rights issue was a flop.

The merged bank will, I think, be headquartered in London where the better-rated Lloyds TSB management now are. The only question mark about that concerns Lloyds TSB Scotland's separate identity, board, and management under chief executive Susan Rice.

For the rest of the staff, there will be a big shake-up. Too much of the two banks' operations overlaps.

At the time of the Royal Bank's merger with Natwest, the two banks between them had 86,000 employees. A year later and 13,000, or 15 per cent, had gone. That sounds bad, but this will be worse because unlike RBS/Natwest, which operated mainly in different retail banking markets with little overlap, there is huge overlap between HBOS and Lloyds TSB.

That means, I am afraid, anything between 20,000-30,000 jobs will go and there will be a big round of closures in the 3,000 branches that the banks have between them.

Although the cuts will be spread across Britain, Scotland may suffer a disproportionately large share because it is where the overlap is most pronounced. A year after any takeover, we can expect 3,000-4,000 jobs to have gone.

Alex Salmond may well complain about that, but the hard reality is that the shareholders of the new, bigger bank will tolerate nothing less.

Peter Jones