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Shareholders in Lloyds TSB have overwhelmingly backed the bank's merger with the ailing HBOS group after a stormy meeting which saw large institutions comprehensively out-vote smaller investors who were unhappy over the deal.
Nearly 96% of Lloyds TSB shareholders voted to endorse the deal, paving the way for its agreed merger with HBOS early next year.
But small shareholders - mostly elderly, some travelling from as far as Devon to Glasgow to make their points - assailed chairman Victor Blank with a series of questions about the controversial deal in which Lloyds will raise £5.5bn to boost its balance sheet and swallow its rival.
The event in the cavernous Scottish Exhibition and Conference Centre on the banks of the Clyde was supposed to last only two hours but overshot hugely as the executives were quizzed on the wisdom of the deal, whether Lloyds risked getting too big like Citigroup and even why shareholders had not been given free parking vouchers for the meeting.
Sitting in long ranks deep inside the centre with the walls shrouded in black drapes, most of the questioners from the 372 small investors were softly spoken, polite and precise - but all were deeply unhappy.
"This board will collectively be putting its head in a noose if this takeover proceeds," said one man bluntly, summing up the mood.
One loyalist shareholder, Michael Riding, suggested it was unwise for the board to "compromise" the bank's success by buying "a very large failed bank" - HBOS.
Tony Petersen, another ordinary shareholder, was just as quietly spoken, but far less polite. The company was heading for "potential state control" by buying a "terminally diseased bank" while the entire sector was in crisis.
Dwarfed by a backdrop illuminated in a subdued and sombre green light, Blank said Lloyds TSB and its advisers had invested "5,000 man hours" in due diligence work on the deal - a figure he repeatedly returned to, to reassure the meeting. "It was looked at, of course, extremely seriously."
Blank insisted the board was equally unhappy about the sharp fall in his bank's market value. But said: "We share some of your despair about it, but what we've seen are external circumstances and conditions the like of which none of us has ever seen before. It's little consolation we've gone down a little less than others."
Blank dismissed fears the bank was being part-nationalised, but Petersen was not to be deterred. In his fourth question, he drew applause by claiming the "deal was cooked up at a cocktail party", stating: "Most of us think that this deal stinks."
"It's difficult to know where to start on that question because what you say is just untrue," replied Blank. The "transaction", he said, had been discussed "over many years" by both banks. He had had earlier merger discussions with HBOS; so too had Eric Daniels, chief executive. The last discussions before the crisis erupted and the deal suddenly emerged, were in late July.
Brian Peart, chairman of the north east of England branch of the UK Shareholders Association, said he felt like a home-owner whose house was being burgled: "I feel at the moment I have robbers breaking in my house, demanding 40 to 60% of my worldly goods. It's no good complaining to the police because we're the government and we make the laws."
Shareholders had earlier been greeted by a small but friendly picket by HBOS staff unions and campaigning politicians unhappy at the planned merger.
Tavish Scott, the recently elected leader of the Scottish Liberal Democrats and the only party leader to oppose the merger, implied that Lloyds TSB shareholders were capitalising on the plight of HBOS: "The Labour government has to explain why losing thousands of banking jobs, branches across Scotland and competition is a price worth paying to force through this takeover."
Wendy Dunsmore, Unite's national officer for HBOS, said they were urging the banks to find a "more creative way" of saving money than pressing for compulsory job losses. Enforced cuts would damage staff confidence and morale, she warned.
Pressed in the meeting by a union official on the Lloyds TSB staff, Nancy Gilligan, Blank would not rule out compulsory job losses - "there will be inevitably some rationalisation of the combined workforce". Nor would he make any guarantees on "off-shoring" more jobs abroad. But he added both banks prided themselves on treating their staff well. "We will treat all employees with dignity and respect," he promised.
Blank had begun by urging the meeting to embrace the deal, "a landmark" in the 243-year history of Lloyds TSB and the British financial services industry. It gave them a "strategic opportunity to create the leading financial services group in the UK, to be a great British bank, and one which will be able to compete globally."
Merging Lloyds TSB with HBOS would create an "unrivalled" network of great brands - Lloyds TSB, Bank of Scotland, Halifax, Clerical Medical and Scottish Widows in particular. "The strategic rationale for the acquisition of HBOS is compelling," he said.
Given the £1.5bn annual savings in running costs expected, he hinted a no-compulsory redundancies deal was unlikely: "We do appreciate many of our employees may feel apprehensive at this time [but] this will create what we believe will be great opportunities for people in the group, although there will be some rationalisation within the workplace."
He tried to head-off questions about why Lloyds TSB had taken the Treasury's funds rather than take money from "public markets". The government's offer "provided certainty, was lower risk and was at lower cost".
Over the next year, the bank expected to buy back the government's preference shares - £1bn in Lloyds TSB and £4bn in HBOS - as a matter of urgency, and then resume paying dividends to shareholders.
"The bank fully recognises the importance of dividends of our shareholders. It's our priority to buy the preference shares in 2009, to ensure payments of dividends after that," he said. "We're delighted we've been able to provide a clear pathway towards dividend resumption."
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