Fears for Lloyds takeover of HBOS.

(From Guardian Unlimited)

There was mounting anxiety about the rescue takeover of HBOS by Lloyds TSB today after wild movements in the banks' share prices heightened fears that the deal may not go through.

Shares in Royal Bank of Scotland were also down 10% despite its attempt to reassure the market this morning that the near-collapse of Dutch-Belgian financial group Fortis yesterday would not affect its business.

Shares in HBOS, which owns the Halifax, have tumbled to more than 30% below the value of the Lloyds TSB offer since it was launched on September 18, which market experts said raised serious questions over whether the takeover would succeed on the current terms.

Donald Tosh of private client stock broker Spiers & Jeffrey said: "The message from the discount is that there is a problem with the deal. Around the world every bust bank has been bailed out by the respective governments. But in the UK, Lloyds is bailing out HBOS and that's why the huge discount has emerged."

HBOS shares fell 10% to 127.2p today, while Lloyds TSB rose 4% to 225.75p by 11.30am. Under the terms of the takeover, each HBOS share is worth 0.833 Lloyds TSB shares ? currently valuing each HBOS share at 188p. It is the discount between 188p and 127.5p that is causing confusion in the City as the HBOS share price would be expected to trade close to the offer price in normal circumstances.

The takeover valued HBOS at ?12.2bn when it was first launched, but that has since fallen to less than ?10bn.