CITY investors last night rejected calls to reverse the takeover of HBOS by Lloyds TSB and rallied around the new super-bank's beleaguered chief executive, Eric Daniels.
Shares in Lloyds soared 10 per cent yesterday in the wake of chairman Sir Victor Blank's promising to step down, and the publication of details of a further £4 billion cash call.
But new calls to demerge the bank in the interests of shareholders
and competition – prompted by Blank standing aside – were dismissed yesterday as being "history repeating itself".
Sandy Chen, a leading bank analyst at brokers Panmure Gordon, said he did not think a demerger, which was demanded by some in the City, was even possible.
Chen commented: "I don't know how they could do that to be honest."
And a source representing significant institutional investors also dismissed the calls as "grandstanding". The source dismissed calls by some in the City for Daniels to follow Blank's move and resign were heeded.
He said: "Calls for Daniels to go too would be crazy because then you have no chief executive or chairman. There is a bit of grandstanding as always with these things. I think most investors are trying to move on and get on with reality."
The mood in the City was reinforced by one of the original critics of the takeover.
Jim Spowart, who actively campaigned to prevent the takeover of HBOS by Lloyds, yesterday said calls to reverse the merger were too late.
Spowart commented: "It is history repeating itself. They should have kept the institutions separate."
Under new terms of the £4bn placing and open offer revealed yesterday, small shareholders will not be penalised if they do not stump up more cash as proceeds of the sale will be distributed in on a pro rata basis to shareholders who do not participate in the placing.
The latest fundraising, to be launched tomorrow, is designed to replace the government's preference shares with normal shares, saving the bank £480m per annum on payments.
As the government is underwriting the placing, if no-one takes up the shares, the government's stake in Lloyds will rise to 65 per cent.
In addition to this, talks to put £260bn worth of troubled bank assets – mainly from HBOS – into the government's asset protection scheme this summer could theoretically see the government's stake rise to as high as 77 per cent.
However, there is some hope that the fundraising will receive some support from investors because the shares are being offered at 38.43p – a discount of almost 60 per cent to the current share price.
Analysts had mixed views on investor sentiment yesterday.
Charles Stanley said the demand for the new shares would be "very hard to fathom". Panmure's Chen, however, said that at 38p the shares were "pretty much worth buying". He added: "I would expect a small take up."
The banks said the fundraising as well as participation in the government-backed asset insurance plan, will lift the bank's Tier 1 capital ratio to about 14.5 percent, one of the highest in the sector.
But Lloyds is likely to post another loss this year and probably next year, according to analysts.
"We expect that Lloyds will generate substantial losses in 2009 and 2010 as some key parts of the UK balance sheet continue to deteriorate," said Chen.
Shares yesterday rose 9.9 per cent to 98p.
