Page last updated at 08:44 GMT, Saturday, 14 February 2009

Darling defends bailout of HBOS

Alistair Darling comments on the HBOS losses

Chancellor Alistair Darling has defended the government's handling of the banking crisis in light of expected record losses at HBOS.

Lloyds Banking Group - which completed its takeover of HBOS last month - says its subsidiary will lose nearly £11bn.

Mr Darling told the BBC's Newsnight the government had to intervene quickly to stop the banking system's collapse.

But shadow business secretary Ken Clarke said the merger was a "disaster" and should not have been allowed.

Shares in the group, which is 43% owned by the taxpayer, closed down 32.5% after the surprise announcement.

'Silly things'

When asked whether the losses represented a disaster for the taxpayer that he had caused, Mr Darling said the government had "no alternative" but to act.

"We didn't have months or weeks to look at it, we had to intervene quickly and that is what we did," he said.

"Now what we've asked the new management to do is to go through the books so we can deal with the assets that have gone bad and the other problems that have emerged."

It looks increasingly as if Lloyds HBOS will now go into majority public ownership - followed inevitably by nationalisation
Vince Cable
Liberal Democrat treasury spokesman

Mr Darling said allowing HBOS to collapse would have had knock-on effects for all of Britain's banks.

"If we had not intervened... the banking system would have gone down, taking millions of families, millions of businesses with it. No responsible government could have done that," he said.

The extent of HBOS' problems were revealed in a week when the City watchdog, the Financial Services Authority, said it had raised concerns about the way the bank was being run as far back as 2002.

Mr Clarke told the BBC's Today programme that the merger had been disastrous, particularly for Lloyds TSB.

He added: "They should never have been allowed to merge. Lloyds TSB was a boring bank, it was a steady bank, it hadn't done silly things."

Liberal Democrat treasury spokesman, Vince Cable said: "Obviously we need to digest the detail, but it looks increasingly as if Lloyds HBOS will now go into majority public ownership, followed inevitably by nationalisation."

The Chancellor refused to rule out nationalisation of Lloyds but insisted a range of options remained open to help the banking sector.

'Long-term potential'

He said the key was getting banks to identify their bad assets so they could be removed from the system.

The expected losses at HBOS were £1.6bn more than it predicted in November.

Much of the blame has been laid at a £7bn write-down at its corporate division, which is heavily exposed to the hard-hit housing and commercial property sectors.

Lloyds chief executive Eric Daniels insisted the company's longer term prospects were brighter.

"Lloyds Banking Group has the largest UK financial services franchise, with excellent long-term earnings potential," he said.

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