Black Horse becomes White Knight

HBoS - the supposed victim if we are to take Alex Salmond seriously of short-sighted, short-selling spivs in the stock markets - has taken refuge in a shot-gun merger with the more sober high street bank Lloyds-TSB - to form Lloyds-HBoS a combined company with assets of more than a third of a trillion pounds and 38 million customers.

If the competition authorities allow it (and the government will surely invoke the national or public interest to suspend normal rules of competition law) then we will have in our midst a banking giant providing more than a quarter of UK property mortgages with significant monopoly power in the banking sector.

The demise of HBoS may well make the credit crunch worse for the ordinary borrower looking for a loan from high street banks. Lloyds-TSB has largely stayed clear of the more reckless forms of lending to people who have become over-extended. They are hardly likely to allow HBoS to do the same when Howard and his friends join the family. We are nudging back to a by-gone era, an age of credit rationing.

Lloyds-TSB and HBoS together employ more than 130,000 people so, whilst the merger wil reduce the risk of another Northern Rock for the government and the prospect of another nationalisation will all of the political damage that would generate.

There will be an enormous number of job losses as the newly integrated business looks to achieve cost-savings. This on a day when official measures of unemployment rose to their highest level for nine years. Up to 40,000 jobs are likely to be lost as a result of the creation of this mega-bank.

Jim’s blog on Robert Peston’s scoop of the year is worth reading!

And if this rescue deal fails? Read Anatole Kaletsky in the Times today