HBOS sees risk of nationalisation

HBOS is urging its shareholders to back the merger with Lloyds TSB.

HBOS says that it could face nationalisation if its proposed takeover by Lloyds TSB is not approved by shareholders.

It said it would need significantly more capital were the deal with Lloyds to collapse, making the loss of private sector status more likely.

HBOS urged shareholders to vote in favour of the merger.

Two former top bank executives had opposed the deal, saying it should remain independent.

Sir Peter Burt, formerly of the Bank of Scotland, and Sir George Mathewson, ex-head of the Royal Bank of Scotland, have tried to block HBOS merger with Lloyds TSB.

The vote will take place on 12 December.

'Negative implications'

HBOS's chairman, Lord Stevenson, warned in a letter to shareholders that independence could lead to "the loss of private sector status" - in effect, nationalisation.

It is understood HBOS fears that all the capital would probably have to come from taxpayers Robert Peston, BBC business editor Read Robert's blog

"The occurrence of any such action may cause the value of HBOS shares to decline substantially with negative implications for HBOS shareholders, " the banks said.

The Financial Service Authority has said that if the merger was not to occur, it would require the bank to raise £12bn.

But HBOS fears that it may have to raise even more and on worse terms, were it to go back to the Treasury now and re-open negotiations on the fund raising.

It told shareholders there is no certainty about quite how much additional capital it would need to raise.

BBC business editor Robert Peston said that it is understood that HBOS fears that all the capital would probably have to come from taxpayers, which would give the state a shareholding in the bank of 70%.