HBOS up 10% on talk of Lloyds takeover

SHARES IN HBOS jumped over 10 per cent yesterday amid growing confidence its proposed takeover by Lloyds TSB will go ahead, as several big investors backed the deal.

MG, the sixth largest shareholder in HBOS and Lloyds, said it supported the takeover under the original terms agreed.

Anthony Bolton, president of investments at Fidelity International and one of Britain's top performing fund managers for two decades, also said he supported the deal.

However, Fidelity - a top shareholder in both banks - declined to say if it supported the deal.

"My personal view on this is that it will succeed and it will go through on the original terms, and I think most parties would like it to succeed on that basis," Mr Bolton told BBC radio.

In afternoon trade, HBOS shares were up 14 per cent at 169.3 pence - the top FTSE 100 stock, narrowing the discount of its shares to Lloyds' offer price to 23 per cent.

Lloyds shares were up 6 per cent at 265p, valuing its all-share offer at 220p.

Also supportive was a report that Commonwealth Bank of Australia has offered to buy HBOS's Australian business BankWest. HBOS and CBA declined comment, but analysts said the banks were likely to be in talks.

The deal will deliver big cost savings and create a domestic banking powerhouse. On the other hand, there are concerns that Lloyds will be exposed to potentially big losses from HBOS's holdings in US mortgage-related assets, that its capital ratios will fall and it will become more dependent on wholesale funding.

HBOS shares had traded at a 35 per cent discount to the proposed Lloyds' offer this week as fears grew that shareholders may not approve the deal or Lloyds could revise the terms.

The discount had also been exaggerated because of HBOS's vulnerability if the deal fell through, Credit Suisse analyst Jonathan Pierce said in a note. "So a relatively small risk of failure translates to a large discount," he said.

A ban on short-selling had made it harder for arbitrageurs to trade the shares, again exaggerating the discount, dealers said.

Many of Lloyds' big investors are also major HBOS investors, making it more likely they will support the takeover deal, analysts said.

Some 17 of Lloyds' top 25 investors are also sizeable investors in HBOS, according to Thomson Reuters data. These companies own 29 percent of Lloyds and 30 per cent of HBOS, the data shows.

Standard Life, a big investor in both banks, plans to support the deal, a source close to the investor said on Wednesday.

MG owns 2.1 per cent of Lloyds and 2.5 per cent of HBOS, according to Thomson Reuters information. Fidelity is the fifth biggest shareholder in Lloyds and seventh biggest in HBOS with stakes of about 2 per cent in each.

Mr Bolton said: "I think it'll be a very good thing for the banking market generally in the UK and I think the combined company will be an attractive investment."

- (Reuters)