HBOS merger was like ocean liners colliding

Bank chairman reveals his fear over bailout deal...

llOyDS chairman Sir Victor Blank warned the Prime Minister that toxic bank HBOS might be unable to open its doors as the financial crisis raged, a court heard.

Blank rang Gordon Brown to warn him of the danger after lloyds decided to buy HBOS in a 2008 mega-deal.

The former chairman said that days after the deal was unveiled, the crisis took a turn for the worse.

He was told by a lloyds executive that HBOS was unable to access emergency support from the Bank of England, meaning branches could be forced to stay shut on September 29, 2008.

Giving evidence in a lawsuit brought by lloyds investors who lost their life savings when the share price crashed after the merger, the former chairman recalled hearing about the perilous situation.

He said: ‘I walked round the garden three times thinking what the heck can I do. It was like two ocean liners about to collide.’

Blank, 75, an Oxford-educated former investment banker, phoned Brown that afternoon to warn that ‘it looked like a catastrophe was coming’.

He added that a bank nationalisation at that moment could have brought the entire financial system crashing down.

The former chairman said: ‘The whole system would have been in dire jeopardy and the Government too. The situation was incredibly serious and he needed to be aware.’

Brown said he would call the Bank of England or watchdogs to see if he could help. The Bank later changed its position on funding for HBOS and lloyds took it over in January 2009.

Investors are suing lloyds, Blank and four other ex-directors for £550m of losses.

They claim the deal should never have gone ahead, but lloyds’ lawyers have called their argument fundamentally flawed.

Asked if the deal had proved a ‘bitter disappointment’ to shareholders by mid-2009, Blank said: ‘I can understand that the shareholders, of which I was one, would be very disappointed that shares went down and not up.’

The banker added that up until he left lloyds, the board and he believed it could trade through the difficulties.

Blank said if lloyds had not bought HBOS, the Government would have had to, at least partly, nationalise it. He added: ‘Were this to have happened, lloyds and the rest of the UK banks may not have been able to open on Monday morning.’