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Five HBOS executives overlooked for boardroom roles when the high street lender is taken over by Lloyds TSB could demand pay-offs of up to £7m. The boardroom named by Lloyds yesterday shunned every member of the HBOS board, and could force contractual payments to departing executives.
Eric Daniels, Lloyds TSB chief executive, will take the same role in the combined bank. He made it clear that interviews had been held from both sets of executives. "We can't have a Noah's Ark structure of two by two," he said.
Lloyds' announcement is the clearest indication yet it is determined to press on with the deal, brokered by Gordon Brown when HBOS appeared on the brink of collapse in September. There was also speculation yesterday that Lord Mandelson was ready to publish the Office of Fair Trading report into the proposed takeover.
The government has already indicated it will overlook any competition issues on new public interest grounds of financial stability. Nevertheless, the watchdog has been required to examine the combined bank; its estimated market share is 30% of all mortgages and 35% of all savers' cash.
If no existing shareholders back the banks' combined £17bn fundraisings, the taxpayer could end up owning more than 40% of the combined entity.
The only HBOS board member named yesterday was Jo Dawson, who runs the insurance and investment arm. She will take a place on the executive committee - which meets outside the boardroom. Harry Baines, HBOS company secretary and general counsel, keeps his role. Otherwise there is uncertainty about the future of Peter Cummings, an executive director; Mike Ellis, HBOS finance director; Philip Gore-Randall, chief operating officer; Dan Watkins, HBOS retail operations; and Colin Matthew, treasury and asset management. Outgoing chief executive Andy Hornby has waived his entitlement to any pay-off. But if his colleagues were to leave when the deal is completed in January, they could demand up to £7m between them on the basis of last year's pay.
It is as yet unclear whether all those overlooked will leave. There is speculation that Cummings, on £2.6m last year, Ellis and Matthew may retire, while Watkins, who is younger, may opt for an alternative role in the combined bank. Ellis, Watkins and Gore-Randall joined part way through the last financial year but the 2007 report indicated they would earn £1m each in an entire year. Matthew earned £1.2m. The government's demand that no director receive cash bonuses this year may reduce any potential entitlement they claim.
HBOS stressed its senior management team "remained very much in place". An HBOS spokesman said: "They are focused on completing the deal with Lloyds and running our business as usual." HBOS added that the new line-up "sent a clear message our deal is on track".
Lloyds shares rose 10% to 197.5 yesterday, above 173.7p at which the taxpayer is buying in, while HBOS was 6% up at 94p, below the price being paid by the taxpayer as well as the Lloyds offer which values each HBOS share at 119p.
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