......to push through a disastrous takeover

A secret series of letters has revealed watchdogs' frantic efforts to push through a disastrous takeover of HBOS bank as the financial crisis raged. Lloyds bought the tainted lender in a 2008 mega-deal but HBOS was so toxic it almost destroyed both banks, which forced the Government to step in with a £20.5billion bailout. Shareholders who lost their life savings say they were misled about the value of the tie-up, and are suing Lloyds for £600million. The case has forced the Government to release previously confidential documents which show there were real concerns HBOS could collapse unless Lloyds stepped in. A note filed by Lloyds chairman Sir Victor Blank revealed he was called by Financial Services Authority chairman Sir Callum McCarthy to ask what Lloyds 'might be prepared to do should there be an emergency'.

McCarthy was particularly keen to know about Blank's desire to buy 'one large institution in respect of which people overseas expressed some doubts', meaning HBOS, and said the FSA would be 'very supportive' of a merger. Another 2008 letter, from FSA chief executive Sir Hector Sants, warned HBOS's failure could be avoided by a merger. He said a failure would force the state to give its customers £97billion in compensation and could see 705,000 people lose £60.7billion. The Government sought to keep the letters secret but lost a court hearing earlier in the year.

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