THE CRASH (1)

Douglas Wood laments the lack of concern for a Scottish institution

When news broke about HBOS on Wednesday 17 September – just two weeks ago – it had a singularly significant impact, almost like one of those clichéd moments people remember by what they were doing at the time. It struck at the emotions; clearly the Bank of Scotland meant more to everyone than had been realised. Complete strangers were talking about it. An institution with a tradition of more than 300 years had been wiped from the landscape in what seemed the space of not much more than 300 seconds, apparently all because of a blip in the share price that morning. There was a feeling that we were all diminished in some way by what happened.
     Contrast that with the following weekend's Financial Times. It made no mention of HBOS in its leader column, and in its main review of a week that 'shook the system to its core' made only a relatively minor reference to the 'rescue' of HBOS by Lloyds TSB. London's perspective was that the main events of the week were to do with the collapse of Lehman Brothers, the rescues of Merrill Lynch and AIG, and serious concerns about the future of Morgan Stanley and Goldman Sachs. It seemed that despite our local feelings the fate of HBOS and in particular the Bank of Scotland did not rate very highly in the overall scheme of things.
     The media in Scotland did not serve us well. They went into immediate overdrive. Experts and politicians either rushed to comment or were rushed into commenting. There was no time for proper reflection. We were told it was a done deal, the merged organisation would be 'Lloyds Halifax' and the final terms of the merger would be settled by the Thursday morning. But it was not a merger, it was to be a takeover, and it took until Monday to clarify that in spite of the agreement of the companies' boards 75% approval from HBOS shareholders was required. As around 25% of HBOS shares are in the hands of about two million individuals this huge army will have a significant influence.
     After an interval of two weeks matters have moved on considerably. The share price has returned to seriously low levels suggesting it was not a blip but is merely reflecting the bank's worth. We are much more aware that the financial crisis is bigger than HBOS and the emotional impact experienced initially has been superseded by more fundamental concerns.
     Many say the merger with Halifax seven years ago was the beginning of the end, and it does seem that the bank may have been too heavily influenced by those steeped in building society and retailing operations. The situation is not made any more palatable by finding that HBOS's Chief Executive had been harbouring designs on a merger with Lloyds TSB for some time. Would the dream ticket of Bank of Scotland and Standard Life, briefly explored many years ago, have made any difference? There is no way of knowing. However, it is ironic that Standard Life was seriously damaged by the actions of the regulators in undermining its strategically astute position on equity levels whereas the bank's problem has been the regulators' failure to act. Nevertheless, Bank of Scotland might never have been safe in the modern business climate without a golden share in the hands of, say, the Scottish Parliament.
     We have to await further developments, but it seems that beyond our borders there may be little sentiment for an iconic Scottish institution.