大象传媒

Insane markets and HBOS

• Robert Peston
• 1 Oct 08, 08:30 AM

First things first: if Lloyds TSB's takeover of HBOS were to collapse, HBOS itself would collapse and we'd all be staring into the abyss.

So that's not going to happen.

The deal has been agreed by both boards.

It's being backed with legislative help by the government.

The prime minister has staked his career on this rescue takeover.

It's going to happen.

But the gap between the value of what Lloyds is offering in shares and the market price of HBOS shares is so wide as to be impossible to ignore.

As of last night, HBOS's share price was 122.4p, while the per-share value of Lloyds TSB's offer was 188p.

So if you believe that the terms of the deal won't and can't be changed, the current HBOS share price is an opportunity to buy 拢10 notes for 拢6.60.

That looks too good to be true. And the normal investing rule is that if it looks too good to be true, then don't touch it even if you're in a radiation-proof suit.

But normal rules don't apply right now.

There's a from an unnamed "major" investor, who said to that newspaper: "the market is suggesting that the deal is not going to happen. And the market is usually right."

The market is usually right? Where has he or she been for the past few years?

In that period, the market has been comprehensively, systematically wrong about almost everything. But don't get me started.

I feel a burning desire to find out whether this "major" investor is by chance looking after my pension, because if so I might as well top myself.

To be clear, however, I am not saying the terms of the deal won't be renegotiated.

That'll depend on one thing and one thing only - whether the two banks fear that the deal will be voted down by Lloyds TSB's shareholders.

Now, there's a 50% to 60% overlap between the shareholders of the two banks.

And if those shareholders were being rational, they would vote for it - because they are simply exchanging one load of paper, their HBOS shares, for another load, Lloyds TSB shares, and the terms of the exchange should be irrelevant to them.

For Lloyds TSB to do the deal, it needs a simple 50% majority of those voting in a poll of its own shareholders.

In spite of the noise from a few recalcitrant shareholders, it's not obvious that the majority won't be secured.

What's more, the date for the vote hasn't even been fixed yet. And markets are so volatile, there's a risk that any revision of the terms at this second would have to be unscrambled again in a few days.

For both boards, it's time to put on the tin hats and explain to their shareholders why the terms were set as they were only a few days ago.

Which implies that those investors betting that Lloyds will massively reduce the price may be burned.

Maybe there will be a downward tweak in the value of the offer. Maybe not.

Markets are exhibiting all the symptoms of madness, so it's conceivable that right now there is an opportunity to buy pound notes for rather less than their face value.

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