First Minister Alex Salmond
Statement on Lloyds TSB/HBOS
Scottish Parliament
Wednesday, Septmenber 24, 2008
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Presiding Officer, I would like to make a statement on the proposed takeover of HBOS by Lloyds TSB.
Last week this Parliament united in support for the staff that may be affected, and in its intention to secure the best outcome for Scotland.
And Party leaders across this Chamber, with one voice, spoke out against the damaging and destructive practices in the financial markets that laid HBOS low.
Presiding Officer, these are circumstances which demand that this Parliament responds effectively to support Scottish jobs, the wider economy and society at large.
Later this afternoon there will be a full debate in this Chamber. Thus I will restrict my statement to the essential elements. These are:
First, the current position of the proposed merger of HBOS and Lloyds TSB.
Second, the Scottish Government's objectives - and what we have already done to secure these objectives, with the full and very welcome support of this Parliament and the wider Scottish community.
And third, the next steps that this Government is taking to promote Scotland's interests.
The current position of HBOS and its staff
Presiding Officer, the Bank of Scotland is Scotland's oldest and one of its strongest and most successful banking institutions. It was founded in 1695 by an Act of the old Scots Parliament.
Today, through HBOS, it is a large, innovative, successful and profitable bank. One week ago, the Financial Services Authority assured the markets that: "We are satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way."
Two hours after that categorical assurance was given, Lloyds TSB and HBOS announced they were in merger talks.
Presiding Officer, I believe that there were no substantive negotiations between HBOS and Lloyds until last week. That means that the companies are more or less starting from a blank sheet of paper. It also means that there is much to play for in terms of future organisation.
Both Lloyds TSB and HBOS are excellent institutions. They have brands which represent a set of household names. And they have strong individual businesses.
HBOS is a lynchpin of the Scottish economy. The bank has more than 300 retail branches across Scotland. And it is one of Scotland's major commercial lenders, from small firms to the very largest.
The group headquarters of the bank are based in Edinburgh, as are many of its group operations, particularly on the corporate and investment side. And a variety of banking functions employ substantial numbers across this country. Altogether, HBOS directly employs 17,000 staff here.
Lloyds TSB employs 7000 staff in Scotland and has a Scottish network of 185 branches.
The Lloyds TSB and HBOS businesses do undoubtedly overlap, and the acquisition document makes clear the expectation of substantial scope for "cost synergies".
Therefore it is not surprising that the proposed merger has caused considerable concern for staff at both companies. I know that both management teams are well aware of these concerns.
They have made clear their intention to move quickly on the details of the merger and, as soon as possible, to provide information to their staff.
Indeed, I understand that meetings are taking place today with the trade unions. I know that all sides of this Chamber will welcome that, and encourage management to respond promptly and sensitively to the interests of staff.
And we should not forget that, particularly because of the way in which both organisations came into to being, they have literally millions of small shareholders. In the case of HBOS, there are 157000 in Scotland alone, many of whom will feel bruised by recent events.
Scottish Government objectives and our actions thus far
Presiding Officer, this Government has responded immediately to address the current situation.
We are in close contact with the senior management of Lloyds TSB. I have had cordial and constructive discussions with Sir Victor Blank, Eric Daniels and Archie Kane from Lloyds TSB - and with Andy Hornby and a number of other executives from HBOS. I have also spoken to a wide range of interests, including the Unite and Accord trade unions.
Moreover, we have sought to build a broad and strong consensus on the necessary steps to defend Scotland's economic interests. Our discussions in Parliament are important to cementing that consensus.
This Government is also working to build a strong alliance among Scotland's key social partners. On Monday, I jointly hosted a meeting with the Scottish Council for Development and Industry (SCDI), attended by around 100 representatives from businesses, trade unions, our universities and colleges and the third sector. I was pleased to be joined by the Party leaders in Scotland. And I am very grateful to Dr Lesley Sawyers of SCDI for chairing the meeting.
Further to that meeting, I was asked expressly by the Scottish Trades Unions Congress to ensure that the National Economic Forum will debate these matters at its next meeting on 8 October. I am pleased to confirm today that we will do so.
Yesterday I chaired an emergency meeting of the Financial Services Advisory Board (FiSAB) to take on expert views and agree on how best to defend Scotland's position as a major financial centre.
Presiding Officer, those have been necessary and very constructive discussions. This Government remains committed to dialogue. And we are grateful to colleagues across this Chamber for their substantial contribution.
Presiding Officer, this broad and strong coalition is crucial to defending Scotland's vital interests in the days and weeks ahead.
My Government has four clear objectives.
First, we seek to protect jobs in Scotland. That means across the whole of Scotland. Not just the Mound. Not just jobs in the capital. But across the whole of this country.
I welcome the assurance from Lloyds TSB, set out in their acquisition document, that "the management focus is to keep jobs in Scotland". We are in discussions with them and with the key trade unions to advance this issue as an absolute priority.
Second, Presiding Officer, this Government is fighting to protect - and where possible to enhance - the core decision-making functions of the new bank that will be based in Scotland.
I welcome the early indication that the new group will retain a Scottish headquarters on the Mound. And more widely, we must ensure that the Scottish head office operations of the new group are as large and influential as possible.
HBOS already has large operations in Scotland that are responsible for core group functions, particularly in corporate and business banking. These are sophisticated and highly successful operations; an irreplaceable asset to any new group.
So we will continue to press the case for a strong Scottish influence - and a strong Scottish brand - within the new group. And here I am pleased to note that Eric Daniels, the Chief Executive of Lloyds TSB, has described the Bank of Scotland brand as 'iconic internationally'.
Our third objective is to mitigate and manage any adverse impact on Scottish economy and society.
Presiding Officer, I spoke earlier about the central role of HBOS in financing Scottish business. The bank's commercial operations are hardwired into the Scottish economy. And, as became clear to all Party leaders attending the Summit on Monday, these operations extend throughout the third sector, to the arts, sporting and cultural organisations, and beyond.
So we will put the case powerfully to the bank's management to maintain this deep and highly productive relationship with Scotland - arguing for the greatest continuity possible in their commercial operations.
Moreover, Presiding Officer, the Government acknowledges the important role of both Lloyds TSB and HBOS in promoting and supporting Scottish society.
Lloyds TSB has an admirable and long-standing commitment to corporate social responsibility and provides generous funding to Scotland's third sector.
Meanwhile, HBOS is a prominent supporter and funder of sports and the arts in Scotland. So we will strongly encourage the new group to continue to honour this important contribution to Scottish society and culture.
Presiding Officer, our fourth objective is to protect Scotland's leading position in financial services.
This country has an international reputation for excellence in financial services, founded on world-class skills. A tradition of innovation and expertise. And a highly competitive cost base.
Today the sector generates an estimated 8% of Scottish GDP and 9 per cent of total employment.
We have recognised strengths across the board - in banking, insurance, asset management and pensions.
There is no question that these developments with HBOS present significant challenges for the industry. But the strengths of Scotland's financial sector are deeply rooted. And this Government is firmly behind it.
Many times before we have encountered a perceived threat to a financial institution, turned to our advantage by our shared common belief in our ability and people.
For example, a few years ago it was thought that Scotland's life insurance sector was in mortal danger. But today we see a story of growth and success. Consider the case of Aegon, who now continue the tradition of Scottish Equitable. And consider Scottish Widows - whose head office operates in Scotland - who have prospered as part of the Lloyds TSB group.
In both cases, the end result was new growth - and the retention of key decision-making functions and high quality jobs in Scotland.
We continue to attract financial services investment in significant quantities from furth of Scotland. Witness the recent decisions of Morgan Stanley, Barclays Wealth, BNP Paribas, HSBC.
What has attracted these global companies to Scotland is the combination of outstanding quality and a strong cost advantage, compared to other financial centres. And these decisions show just why Scotland offers a magnificent business location for key decision making functions.
So we will work tirelessly to maintain Scotland's excellent reputation in financial services. By ensuring the best possible deal for Scotland in the current merger. And by deepening our commitment to attract new business to Scotland, and promoting our excellence worldwide.
Presiding Officer, those are the objectives of the Scottish Government in relation to the proposed merger of HBOS.
I hope that the whole Chamber will remain united in support of these vital goals.
Conclusion: next steps by the Scottish Government
Presiding Officer, there is a great deal at stake.
In recent months, I have spoken of Scotland's economic resilience in the face of the gathering global economic slowdown.
That economic resilience has been evident from the robust performance of the labour market. The latest data from the International Labour Organisation shows Scotland's unemployment rate at close to a series low of 4.2 per cent - well below the UK level and one of the lowest in Western Europe - with employment rates remaining close to a record high.
That Scottish resilience also comes through in strong trade figures. In economic growth that has at least matched the UK level in the last three reported quarters.
And in the £1 billion of new investment in our renewable energy sector, made in the last two months alone.
There is a concern that that resilience may now be on the line. And that concern only strengthens our resolve to get the best possible result for Scotland.
That is why, in the course of my meetings with the key players, I have agreed to prepare a full business case for the Lloyds TSB team. That document will present - clearly, simply, persuasively - the Scottish 'offer'. World class skills. Deep and broad financial expertise. And a substantial quality to cost advantage.
I will be proud to present that business case direct to the Lloyds TSB/HBOS merger team.
We have also offered Lloyds TSB the opportunity, which in principle they accept, to speak directly - as their proposals develop - with the key social partners in the Scottish economy, through the SCDI and through the Financial Services Advisory Board.
Presiding Officer, I said last week that this Government would strain every sinew to secure a good outcome for jobs and key decision making functions for Scotland.
We are keeping that promise, using every opportunity to advance Scottish interests.
That we have reached a broad consensus on what is right for Scotland - in this Chamber and across Scottish society - is of vital importance.
Our work now, collectively, is to demonstrate why Scotland should be central to the plans - and future success - of the proposed new banking group.