'Lloyds TSB and HBOS will lose billions if merger fails'

LLOYDS TSB and HBOS will lose billions in taxpayer support if they fail to agree a merger, the Chancellor said today.

Alistair Darling warned that the Treasury would renegotiate the terms of its recapitalisation plan should the planned £12billion takeover of HBOS collapse.

In a Commons statement, he also made clear that Barclays would get a worse deal from the Government if its own Arab funding plan failed and it was forced to ask for Treasury cash.

Mr Darling said any new deals would be set at today's share prices, rather than those when the original £37billion bank bail-out was unveiled on 13 October.

The initial plan was for the taxpayer to buy £17billion in shares in the merged Lloyds TSB and HBOS. The Government agreed to buy discounted HBOS shares at 112p, but today these are worth just 67p. The agreed Lloyds TSB share price was 170p, and today is 127p.

The banks would lose billions in possible taxpayer help if their merger failed to go ahead. Each would have to negotiate an individual deal with the Treasury, Bank of England and Financial Services Authority.

Mr Darling said there is no automatic right of access to government recapitalisation, a clear hint to Barclays it may have missed the boat on Treasury help.

He said: "HM Treasury will continue to focus on three key objectives: maintaining financial stability, safeguarding the interests of taxpayers and protecting depositors and consumers."