Lloyds staff and shareholders were “mugged” by the decision to conceal £25.4bn in Bank of England loans to HBOS last autumn, an MP said today.
MPs slammed the decision not to disclose the emergency funding until yesterday and for keeping Lloyds investors in the dark over the extent of the troubles at HBOS.
In an emergency statement to the Commons, Alistair Darling said if the loan had been made public it could have “seriously jeopardised” the stability of the entire UK financial system.
He added that the loan had been repaid in full by early January, ahead of completion of the deal.
But MPs said investors should have been informed of the loan when the banks were putting forward their case for the merger.
“Lloyds workers and shareholders were mugged,” said MP Jim Cousins.
More than 10,000 jobs have been cut at Lloyds Banking Group since its merger with HBOS as the deal left it saddled with billions of pounds of bad debts and toxic loans.
Lloyds chief executive Eric Daniels could face questions over the emergency loans from shareholders tomorrow when they meet in Birmingham to vote on the bank's planned £13.5bn cash call – the biggest rights issue in UK corporate history.
The loan details emerged yesterday when Bank Governor Mervyn King revealed in a Treasury Select Committee hearing that £61.6bn was lent to Royal Bank of Scotland and HBOS at the height of the financial crisis last autumn.
While support for RBS peaked at £36.6bn on October 17, HBOS borrowed £25.4bn on November 13 when then chairman Dennis Stevenson was appealing to the bank’s shareholders to back the Lloyds deal. Lloyds investors voted in favour of the takeover on November 19.
HBOS was rescued from nationalisation by Lloyds TSB, but the Government took a 43% stake in the combined group as it pumped in cash amid soaring bad debts.
Mr Darling said he fully supported the Bank of England’s decision to keep secret details of the emergency support.
He said: “The Bank’s assessment at that time was that it was vital that their emergency liquidity assistance operations remained confidential, and that any disclosure or leak of the operations would seriously jeopardise the financial stability of the system as a whole. I shared this assessment.”
The Banking Act 2009 made it possible for the Bank to keep secret funding assistance in cases where financial stability may be put at risk – introduced in the wake of the run on Northern Rock.
Mr Darling said he decided any disclosure of the loan was “not in the public interest”.
He also said Lloyds directors disclosed in the HBOS merger literature that the group was expected to rely on Government financial support – although the scale of the operation was not revealed.
The Chancellor sought to assure that there had been “no cost to the taxpayer” from the emergency loans, both of which were repaid within months and for which the two groups paid a fee and put up collateral worth more than £100 billion.
However, he admitted the loans were not charged at “commercial” rates of interest.
