News Of HBOS Purchase By Lloyds TSB Revitalizes London Stock Market

September 18, 2008 11:09 a.m. EST

London, England (AHN) - After a day of negotiations, Lloyds TSB agreed to purchase the Halifax Bank of Scotland for $21 billion. The two banks announced their corporate union Thursday.

The merger of two institutions is expected to create one of the strongest banks in the United Kingdom, but it may lead to massive job losses and branch closures.

News of the purchase by Lloyds of Britain's largest mortgage lender revitalized the London Stock Exchange after suffering for three straight days. The FTSE rebounded by 84 points to 4,997 by early afternoon. HBOS shares went up 53 percent to 224.74 pence and Lloyd's stocks increased by 5.5 percent to 295 ? pence.

After the two banks confirmed the news, the Financial Services Authority, in a statement, said it was "satisfied that HBOS is a well-capitalized bank that continues to fund its business in a satisfactory way. 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 U.S. financial sector."

The strengthened bank will be run by Lloyds TSB chairman Sir Victor Blank and chief executive Eric Daniels. With their combined resources, it will have 38 million customers and 142,000 employees. But there are fears 40,000 job would be cut.

Sir Peter Burt, former chief executive of the Bank of Scotland, which merged with Halifax in 2001, said HBOS was a victim of speculators. Because of speculative trading, value of HBOS fell to as low as 88 pence Wednesday, which recovered Thursday on news of its merger with Lloyds TBS.