Treasures from the Threads - Number Twenty-one

This comment is to a typically weak article from the monumentally useless 'so-called' "Leader" of the Opposition David Cameron in today's Daily Telegraph, linked here: "it is ... critical that we stand up for the interests of taxpayers" You've got your work cut out for you, Sir. What will be the effect of the Brown-Darling rescue plan? Let's look at one example. When the Lloyds TSB deal to take over HBOS was put together in mid-September, Lloyds (280p) were offering 0.83 shares per HBOS share (232p). Yesterday, Lloyds closed at 210p. 0.83 of that is 174p. But HBOS closed at 117p. Lloyds cannot sensibly stick to the original price. They would be paying 49% too much for HBOS. So Lloyds will have to re-negotiate the price. Not easy at the best of times. But now there is an added complication, thanks to the government's rescue plan. HBOS have confirmed that they want to take up the government's offer of re-capitalisation. How much coupon would the combined bank have to pay the government? It doesn't matter. However much it is, Lloyds can pay for it by reducing the price it pays for HBOS. How much is the government's promise to waive the competition laws worth to Lloyds? A lot. But how much do they have to pay for it? Not a lot – the government have no alternative. How important is it that Lloyds keep HBOS branches open and staffed? Very. Very important to the staff. And very important to the government. Lloyds can pay for that by reducing the price it pays for HBOS. Can Lloyds afford to walk away from the deal? Yes. Can the government afford for Lloyds to walk away from the deal? No. You say that: "we back, in broad terms, what the Government has done" Is that wise? Let's test it by trying to guess the price Lloyds will actually pay for HBOS. 0.83 Lloyds shares per HBOS share? No. Too high. Why should Lloyds flush its billions away? 0.56? No. Too low. Or is it? Is there any such thing, now, as too low, when we know that there is at least £50bn to be flushed away? Now multiply that by all the other transactions that need to be completed before the problem is solved. It doesn't work. Not for the first time, the government's plan is not a solution to the problem it faces. Posted by David Moss on October 9, 2008 12:58 AM