Banks’ small business lending to be monitored

Business Secretary Peter Mandelson has announced the creation of a new panel to monitor how banks are lending to small businesses.

The five major high street banks reached an agreement with the government to provide data on the availability, risk and overall cost of lending to small and medium sized businesses at the first meeting of the Small Business Finance Forum.

Detailed talks will now be held with each of the banks to reach individual agreements on the provision of data to the panel.

The monitoring panel will be made up of senior Department for Business and Treasury officials and representatives from the Bank of England. It will monitor and enter into a constructive dialogue with individual lenders on the availability, risk and overall cost of SME lending.

The Forum also secured an agreement from the British Bankers’ Association to work with Small Business organisations to fundamentally revise the Statement of Principles which set out how banks and businesses work together.

Business secretary Peter Mandelson said: “It is critical we understand what finance is available for small businesses and this monitoring panel will give us greater insight into the situation at ground level.

“The panel, together with the revised Statement of Principles, shows a commitment to making progress on resolving the credit issues faced by small businesses.

“I want this Forum to make a difference. We have opened up a dialogue between SMEs and banks, and we will continue to work together to make sure we have the resources in place to see UK plc through this difficult economic climate.”

Banks, businesses and government also discussed the need to increase awareness of the support and information available to help companies to manage cashflow.

Consultations with business and finance organisations revealed a number of companies feel they do not have access to the right advice they need on financial management.

The Government, in partnership with the Institute of Credit Management, has produced a series of basic guides designed to provide this support direct to businesses. Forum members will now promote the guides over the next few months.

The Forum’s Terms of Reference and membership were also agreed at the meeting.

Darling commits to action on economy

Alistair Darling has pledged to take action to address weaknesses in the financial system.

In an interview this morning with the BBC the chancellor said he would take action to promote long-term economic stability but has refused to elaborate on the specifics of his plan.

During the chat on Breakfast this morning, which was screened live from the Labour conference in Manchester, he refused to comment directly as to whether the changes would include an increase in income tax but hinted that money would have to be returned to the coffers at some point.

He says: “It is not the time to take money out of the economy.

“If you borrower money you have to get the balance between taxing and spending right but you do it over a period and support the economy over the period.”

Darling also encouraged banks to behave responsibly in the current crisis and said that the government must “toughen up” the economic system.

This strengthening will likely include measures to address City bonuses but Darling says this is only one area the Financial Services Authority is looking at.

HBOS taken over by Lloyds TSB

Lloyds TSB has agreed to take over HBOS in a move both parties believe will strengthen the new bank’s ability to survive the extraordinary turmoil that the markets have seen over the past weeks.

HBOS shareholders will receive 0.83 Lloyds TSB shares for every 1 HBOS share. The offer values HBOS at £12.2 billion, based on Lloyds TSB’s closing price on 17 September 2008 of 279.75 pence. Existing Lloyds TSB shareholders will own approximately 56% of the issued share capital of Lloyds TSB as enlarged by the acquisition and existing HBOS shareholders approximately 44%.

The FSA says is satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way.

The regualtor said: “The announcement of the proposed merger with Lloyds TSB is a welcome move as it is likely to enhance stability within financial markets and improve confidence among customers and investors in the UK financial sector.”

In a statement, the boards of HBOS and Lloyds TSB said they: “…believe that the acquisition is a compelling business combination which offers substantial benefits for shareholders and customers. The acquisition accelerates Lloyds TSB’s stated strategic aim to build the UK’s leading financial services company by focusing on growing sustainable earnings streams, based on deep customer relationships.

“Lloyds TSB’s intention is that the combination will strengthen its ability to serve UK customers in these difficult markets. Specifically Lloyds TSB intends that new lending by the new combined bank for both UK mortgages and SMEs will continue at least at current levels and will expand as market conditions improve.”

Lloyds TSB says it intends to increase the range of products on offer on competitive terms to first time buyers, building on the current shared equity and shared ownership offers.

The enlarged Group will continue to use The Mound as its Scottish headquarters, will continue to hold its Annual General Meeting in Scotland and will continue to print Bank of Scotland bank notes. In addition the management focus is to keep jobs in Scotland.

Sir Victor Blank will be chairman and Eric Daniels will be chief executive of the Enlarged Group.

The new bank will look to save in excess of £1 billion per year by 2011.

Sir Victor Blank, chairman of Lloyds TSB said: “This will be a unique opportunity to accelerate and extend our strategy and create the UK’s leading financial services group.

“Lloyds TSB/HBOS’s outstanding franchise will enable it to service more of its customers’ needs with the balance sheet strength to prosper in challenging markets. This is a good deal for customers and shareholders.”

Dennis Stevenson, chairman of HBOS, said: “This is the right transaction for HBOS and its shareholders. Against the backdrop of the very high levels of volatility our industry is experiencing, the combined group will be one of the strongest players in the UK financial services sector. In addition, the combined group will have excellent brands and a very powerful franchise. We are recommending our shareholders vote for this transaction.”

HBOS confirms it is in talks with Lloyds TSB

The board of HBOS says that it is in advanced talks with Lloyds TSB which may or may not lead to an offer being made for HBOS.

It says a further announcement will be made when appropriate. Sources close to HBOS say the deal would be unlikely to involve an exchange of money and most likely entail a straight share swap.

If the merger did go ahead it would create a massive banking giant with a market capital of £30bn, easily breaching competition rules.

But reports state that the government would sit on any breaches of the competition rules to force any possible deal through.

Tony Ward, chief executive of Home Funding, says: “I feel sorry for HBOS. I think it has been hounded relentlessly and unfairly over the past few days.

“It is a good thing that this discussion is taking place but it’s sad that it’s come to this. I dread to think of what will happen if the deal doesn’t go through.”

David Hollingworth, mortgage specialist at London & Country, says: “There are two ways of looking at it. On the one hand it will stabilise the market and stop any potential impact on HBOS shares.

“On the other hand, in the longer term, two enormous powers will merge to create one giant. The two lenders would normally be battling it out in the market, brokers will be loosing one huge lender, which is bad for competition.”

Barclays reaches $1.75bn deal for Lehman assets

Barclays has reached a $1.75bn (£1bn) deal with Lehman Brothers to acquire the bankrupt bank’s core North American assets.

Lehman’s investment banking and capital markets businesses will be moved over to Barclays in a $250m deal, while the UK giant has also agreed a $1.5bn purchase of the stricken investment bank’s New York head office and two other centres.

Barclays will take on trading assets worth $72bn (£40bn) and $68bn (£38bn) in current liabilities, while up to 10,000 Lehman jobs will be saved.

The deal is a “once in a lifetime opportunity” for the UK bank, Barclays president Robert E Diamond Jr says.

“We will now have the best team and most productive culture across the world’s major financial markets, backed by the resources of an integrated universal bank,” he says.

The acquisition needs the approval of the United States Bankruptcy Court and may be terminated not completed by 24 September.

Lehman failure marks ‘tail end’ of bank turmoil

The worst of the global banking crisis engulfing stock markets has come to an end following Lehman Brothers’ bankruptcy, prominent financials sector fund manager Ken Murray explains.

Murray – the Blue Planet Worldwide Financials, European Financials and Financials Growth and Income investment trusts manager – says the weekend’s events on Wall Street mark the tail end of the credit crunch-inflicted bank decline.

“The problem with the stockmarket is that it only deals with the present,” Murray says.

“We have always been forward looking, and the outlook is very good. Now is not the time to panic, maybe it was time to panic a few months ago, but not now.”

Murray says the Blue Planet team was not surprised by the major bank failures in the US.

“Last year we actually identified both Bear Stearns and Lehman Brothers as companies that could go under,” he says.

“At the time, we saw that only a 4.6% negative variation would cause Lehman to lose its capital.”

The Blue Planet manager does not envisage any more major bank difficulties, as the major players have become “ultra conservative”.

Murray says while he would not invest in US or UK banks, the global share slide has opened up “once in a lifetime” buying opportunities elsewhere.

“There are tens of thousands of banks out there and the number affected by this is very small,” he says.

“There are enormous opportunities out there – particularly in India, Russia, Greece and South East Asia.”

LIBOR at seven-year high

London Interbank Offered Rates reached a seven-year high this morning in the wake of market turmoil over the last 36 hours.

The overnight Libor rate in U.S. dollars soared 3.33 percentage points to 6.44 per cent today, its biggest jump in at least seven years, according to the British Bankers’ Association.

The British Bankers Association says: “The LIBOR overnight rate recognises that, in the current uncertain market conditions, banks are looking to their own liquidity as the priority.

“This is particularly reflected in the US Dollar because of the well known world wide shortage of this currency.

“The Bank of England and the European Central Bank have all said they are monitoring market conditions closely.”