大象传媒

Bank of China sniffs HBOS

• Robert Peston
• 10 Nov 08, 03:20 PM

, the giant Chinese bank, is the mystery bank that Jim Spowart and hope will make an offer for to stymie the takeover bid from Lloyds TSB.

It would be quite an event were it to happen. If Bank of China swallowed our biggest mortgage bank, that would represent the most ambitious overseas acquisition ever by a Chinese institution.

Which many investors will see as reason to believe that - when it comes to "make-your-mind-up" time - an offer won't be forthcoming. Since Chinese businesses are not famous for their derring-do in the deals market.

Also, if Spowart and Bank of China were anywhere close to making a formal offer, they would by now have been forced to make a statement to that effect by the , under the code that governs these things.

So we can safely assume that Bank of China is not poised to swoop, that preparations are at a pretty early stage.

Which means, for now, that HBOS shareholders have a choice of the bird-in-hand, Lloyds - which may not be as plump as they may like - and that nebulous thing in the bush spotted by the duo of banking knights who want HBOS to remain independent.

Except that there may be nothing in the bush.
How so?

Well I thought that the that Lloyds TSB has lent 拢10bn to HBOS was highly significant (and, for the avoidance of doubt, Lloyds has lent its prey this tidy sum).

That 拢10bn is more than Lloyds would normally be allowed to lend to a single bank, under the 's strictures on how much any bank can be financially exposed to another bank.

It's only been allowed to make the loan because the City watchdog - like the Treasury - believes the takeover by Lloyds is a good thing and expects it to go through.

Which is unambiguous evidence that almost any other solution for HBOS's woes would be seen by the authorities as a poor second best.

And that, in turn, is enough to tell any putative bidder - Bank of China or anyone else - that it may be a fair old waste of time and money to prepare a counter-offer.

Also, in the unlikely event that another bidder were to emerge, it would probably have to pay back Lloyds pretty sharpish - which, with money markets still pretty dysfunctional, would not be easy.

Although in theory that 拢10bn could be replaced by an expensive taxpayer-underwritten issue of new debt securities by HBOS.

The inescapable conclusion to be drawn from the extraordinary support being given by the Treasury and the FSA for the Lloyds takeover is that they don't believe HBOS has a viable long-term business model.

Ministers and officials fear that HBOS has made serious strategic errors both in the way it funds itself and in the way it lent money.

Put crudely, HBOS is too dependent on finance from a mortgage-backed securities market that remains almost completely paralysed.

And HBOS lent too much to homeowners, and also to construction and commercial property companies - which are among the worst victims of our economic woes.

Here are two chilling statistics. As of 30 June, HBOS had to refinance 拢156bn of wholesale funding over just 12 months.

That's a huge amount of cash to raise in wholesale markets that have run dry. Which bank of its size anywhere in the world could comfortably raise so much right now?

And HBOS has 拢35bn of loans on its books to the crashing property and construction industries - a strong indicator of losses yet to be incurred.

What does that all mean?

Well the authorities became convinced in September and still believe that the most likely alternative for HBOS, were Lloyds not to buy it, would be nationalisation - which is not a bird in the bush that many HBOS shareholders will find attractive.

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