Agreement reached for LTSB to acquire the businesses of HBOS
Note to Corporate Clients of HBOS Employee Equity Solutions
The recent events have been widely reported in various news media. The purpose of this note is to give our clients and, equally importantly, their employee participants in share schemes as much information as possible.
Markets react to both fact and rumour. Irrespective of what has been speculated recently, the fact is that respective Boards of both Lloyds TSB ("LTSB") and HBOS announced yesterday that they were in discussions regarding a potential merger. Indeed, this morning a formal announcement was made that agreement had been reached for LTSB to acquire the businesses of HBOS.
The proposed transaction will be subject to both regulatory and shareholder approval.
Benefits
It is widely held that this transaction will greatly improve confidence, not only in respect of the banks concerned, but more generally in the entire UK banking sector. This has to be good news for customers.
Further details of the benefits resulting from the transaction can be found in the LTSB announcement at www.investorrelations.lloydstsb.com/ir.
What does this mean for clients of HBOS Employee Equity Solutions ("EES")?
EES administers a wide range of employee share plans on behalf of corporate clients and will continue to do so, notwithstanding any corporate transaction which may take place in the meantime. It's very much "business as usual" in that respect.
Nonetheless, we appreciate that your employees will have questions and may be particularly concerned about the security of their assets. We have set out below specific information that may be helpful in reassuring employees.
Sharesave (UK Approved Savings Related Share Option Schemes)
Sharesave requires individual participants to save a fixed amount per month in a specifically designated savings account for a period of time defined at the outset (typically 3 years but in some cases longer). The EES product offering involves full day-to-day administration of the share plan, including the individual savings accounts. These accounts are held by Bank of Scotland plc ("BOS").
Under the terms of the Financial Services Compensation Scheme ("FSCS"), Sharesave participants' savings are protected up to a limit of £50,000. Full details of the FSCS can be found at www.fscs.org.uk.
Given the limit on how much may be saved under Sharesave (maximum of £250 per month) and the period of saving (contributions may be made for a maximum of 5 years) then the FSCS protection will cover all of an employees' savings under a Sharesave Scheme. It should be noted, however, that the limit of £50,000 applies to the aggregate savings of an individual with BOS and its subsidiaries.
"Bank of Scotland is a member of the Financial Services Compensation Scheme established under the Financial Services and Markets Act 2000. Where a customer has made deposits in a savings or bank account, payments under the scheme are limited to 100% of the first £50,000 of the customer's total deposits, subject to a maximum payment to any one depositor of £50,000. Most deposits are denominated in sterling and other European Economic Area currencies and Euro made with offices of the bank within the European Economic Area are covered. There are different levels of protection for other investments covered by the Financial Services Compensation Scheme. Further details of the scheme are available on request."
Assuming that the corporate transaction proceeds, then Sharesave savings will be held by LTSB and hence benefit from similar protection through LTSB's participation in FSCS.
Share Plans where an EES entity acts as Nominee or Trustee
EES also holds shares for participants as Nominee or Trustee. For this type of arrangement, any assets of such participants are held by the trustee/nominee on behalf of the beneficial owners, i.e. the share plan participant.
In other words, the assets held by any of the entities operated by EES (Halifax Corporate Trustees Limited, Halifax Capital Trustees Limited, Halifax EES Trustees Limited, Halifax EES Trustees International Limited and Halifax EES Nominees International Limited) are held beneficially on behalf of employee participants and do not form part of the assets of HBOS.
If the corporate transaction with LTSB proceeds, then it may be that the formal title of those entities changes. However, the legislative requirement that assets are held separate from the bank's assets will remain and hence such assets will not form part of the assets of LTSB.
In summary, any employee shares are protected, as EES is merely an administrator of the Trust/Nominee facility, and has no rights to those assets.
