L&G knocks spots off the toppling dominoes
Legal & General is leading the opposition to the ban on state-rescued banks paying dividends – but it was the life and pensions company that started this row of collapsing dominoes.
As holder of 3 per cent of the FTSE 100, L&G has more to lose from Lloyds TSB, Royal Bank of Scotland and HBoS paying no dividends for five years than anyone other than their main future shareholder, HM Government, which imposed the ban as a condition of providing preference shares in the bank bail-out.
Yet this whole restructuring of the banking sector goes back to 1999 when Legal & General agreed a merger with the ailing NatWest. Sensing that NatWest investors would not like a no-premium merger, Bank of Scotland made a hostile bid for NatWest – the first hostile offer even for a UK bank.
That provoked BoS’s Edinburgh rival, Royal Bank of Scotland, to counterbid and, after each bidder increased its terms, RBS won. However, it put Bank of Scotland into play, as the City likes to say of companies that have proved themselves willing to merge but are left without a partner.
Abbey National approached BoS but Lloyds TSB offered better terms but both bids attracted the attention of the competition authorities. By now, however, the question for BoS was who and how much – independence was no longer an option.
Halifax, the former building society, was thus welcomed as a white-knight and HBoS was created.
HBoS had to compete hard against the enlarged RBS/NatWest however – so hard it moved into marginal areas including US mortgage securities that are below prime.
Royal Bank, meanwhile, needed new growth to match its NatWest acquisition. Barclays had bid for ABN-Amro before the credit crunch bit last year; RBS sought to gazump Barclays for the Dutch bank, just as it has gazumped BoS for NatWest. It outbid Barclays and overpaid enormously.
RBS has thus had to turn to the UK government for help, becoming a nationalised bank.
HBoS turned to Lloyds TSB, the bidder BoS had shunned in 2001 in favour of Halifax. But within days it too had to seek Treasury help that leaves the government with a majority stake if the merger does not proceed: Lloyds, meanwhile, has had to accept state investment too.
The moral of this nexus of bids is that those who live by M&A are likely to die by it too. Yet only one name from this cast list survives untainted. Abbey ran into its own troubles and was taken over by Santander of Spain; Barclays hopes to avoid the government bail-out but must find another £4.5bn of capital on top of the £4.5bn it raised in the summer. The Scottish banks have lost their independence. But Legal & General, which knocked over that first domino nine years ago, continues to trade, unscathed.
