That HBOS/Lloyds spread

Well, it is narrowing by the minute. From 35 per cent this morning it now stands at 29 per cent, having been as low as 25 per cent half an hour ago.

One reason for the move is this rumour:

Standard Life is planning to stick an official statement out this afternoon confirming its position.

Of course we don’t know if its true – it’s just market gossip – and traders have been quick to point out that Standard Life is not one of Lloyds biggest shareholders – it owns just 1.5 per cent. But it is a big shareholder in HBOS – 3.15 per cent – and investor overlap will be key to whether this deal happens.

According to Credit Suisse, funds holding about 30 per cent of shares in HBOS also have large holdings in Lloyds TSB.

>An analysis of the Top 20 shareholders of each bank shows that 25% of Lloyds TSB shareholders have equally large % holdings in HBOS. Much of this will be in index funds. On the assumption that HBOS is worth little in the absence of a deal, this could sway these holders to vote the deal through. And the Scheme of Arrangement means only 50% of Lloyds TSB owners are needed to approve.

And

These holders shouldn’t be too concerned about the exchange ratio as it simply transfers value from one share to another. Assuming retail holders accept the management recommendation as well, that means potentially 45% of holders are likely to accept the deal before we even get below the Top 20. 75% or more of the base is required to vote this through.

Which means

Overall therefore, we think there’s a good chance that this deal goes ahead, but that wouldn’t entice us into HBOS as we don’t really like the look of the combined group and as we say the discount might look big but is reflective of the potentially binary.

Related links:

Brown confident over Lloyds-HBOS deal – FT

Pestowire: HBOS/Lloyds will happen – FT Alphaville