Lloyds Acquires HBOS, BoE Adds Liquidity

123jump.com Staff
18 Sep, 2008
New York City

Central banks in six countries, including the Bank of England added liquidity in the short term dollar loan market. The coordinated move led by the U.S. Federal Reserve Bank will facilitate lending between banks which has dried up since the falel of AIG and Lehman Brothers. UK also banned short sale of financial stocks to prop up banks and brokerage houses. Lloyds TSB agreed to acquire HBOS plc for 12.2 billion pounds after the lender stock nearly falls 40% this week.

[R]3:00PMNew York, 8:00PM London - The August retail sales rise 1.2%. Lloyds TSB Groups acquires HBOS for 12.2 billion pounds.[/R]

London stock indexes fell marginally on continued weaknesses in financial stocks despite efforts by the six biggest central banks to provide additional cash on the global money market.

Market Sentiment

In London trading FTSE 100 fell 0.66% or 32.4 to 4,880.00

Of the FTSE 100 index stocks 43 rose and 59 declined. HBOS led advancers in the index shares with a rise of 17.34% after Lloyds TSB Group agreed to acquire the troubled lender.

Central Banks Ratchet Up Efforts to Provide Liquidity

The Bank of England reported on its Web site today that it together with the Bank of Canada, the European Central Bank, the Federal Reserve Bank, the Bank of Japan and the Swiss National Bank have added liquidity to relieve pressure in the US dollar short-term funding markets.

For its part, the BoE will offer to lend each day US dollar funds overnight against eligible collateral and the first operation will be today with the amount offered in each repo operation will be $40 billion.

Also the Bank of England has concluded a reciprocal swap agreement with the Federal Reserve through which the latter will provide it with U.S. dollar funding to facilitate these operations.

Lloyds TSB Groups Acquires HBOS

Lloyds TSB offered to buy independent mortgage lender HBOS Plc for 12.2 billion pounds. Lloyds offered 232 pence a share, nearly 60% premium from the previous day closing price of HBOS. The troubled mortgage lender had relied on wholesale funding which has increasingly dried up in the wake of U.S. credit market crisis. Lenders in Australia and UK have seen their access to cheap source of funding nearly shut off for more than a year.

U.K. Retail Sales Rise 1.2% in August

The Office of National Statistics reported today that the volume of retail sales gained 1.2% between July and August due to increases in clothing and footwear sales. In the quarter to August, the seasonally adjusted index for the volume of retail sales dropped 0.8% from the previous quarter.

In addition, in June to August the seasonally adjusted volume of sales was 2.5% more than the same period a year earlier and sales at food stores rose 0.6%, non-food stores sales were up 2.9%, while non-store retailing and repair sector surged 11%.

Gainers & Losers

HBOS Plc led advancers in the FTSE 100 index shares with a rise of 17.34% followed by increases in Drax Group of 10.75%, in Kingfisher of 9.68%, in London Stock Exchange of 7.86%, and Carphone Warehouse of 7.80%.

HBOS Plc gained after Lloyds TSB agreed to buy the troubled mortgage lender.

Kingfisher rose after retail sales in August increased. Other retailers gained as well. Tesco advanced 3.92% and Next plc edged up 3.73%.

Old Mutual led decliners in the FTSE 100 index shares with a fall of 15.54% followed by losses in Lloyds TSB Group of 15.10%, in British Airways of 10.79%, in Man Group of 8.52%, and Barclays of 5.27%.

Financial stocks fell on lingering worries of more credit market related losses. Royal Bank of Scotland lost 4.5% and Standard Chartered slumped 1.91%.

Realty stocks also plunged as banks maintain tighter lending. Land Securities slipped 4.2% and British Land Co. shed 2.61%.

Europe Markets Review

In London FTSE 100 Index closed lower 32.40 or 0.66% to 4,880.00, in Paris CAC 40 Index decreased 42.25 or 1.06% to close at 3,957.86 and in Frankfurt DAX index higher 2.44 or 0.04% to close at 5,863.42. In Zurich trading SMI decreased 31.08 or 0.47% to close at 6,623.25.