Trustees of HBOS's pension scheme will seek to delay the bank's takeover by Lloyds TSB in court on January 12 if the latter refuses to offer acceptable support to the scheme, they said on Friday.
"Your trustees have decided to take this step reluctantly," they wrote in a letter to members of HBOS's final salary pension scheme (FSPS).
"We understand the commercial basis underpinning the acquisition and do not oppose it as such; however, we also believe that it is fundamental that appropriate arrangements are made to protect the accrued benefits of FSPS members."
A Lloyds spokesman said the acquisition as currently planned would strengthen the covenants of the HBOS pension scheme, but that it would continue to talk to the trustees with a view to finding a way to ease their concerns.
The trustees also said they had decided to commission a valuation of the pension scheme at December 31, which they believe could show a deficit of between 3 billion and 5 billion pounds.
"Lloyds TSB envisages that the enlarged group will be reconfigured after the acquisition in a manner that may reduce cash flows and distributable reserves in HBOS," they said.
"If this occurs there would be a further weakening of the already weak covenant provided to the FSPS by HBOS."
The trustees had proposed the parent company that would be created by the acquisition could guarantee HBOS's obligations to the pension scheme, but said Lloyds had rejected this.
"Your trustees have made it clear that we would be willing to discuss any alternative measures that Lloyds TSB propose instead. However, no such proposals have been made," they said.
A court meeting due on January 12 to legally approve the takeover will decide whether to agree to the delay proposed by HBOS's pension trustees.
Lloyds agreed to buy HBOS in September in a government brokered deal after HBOS's share price was ravaged by concerns about its health as the credit crunch deepened. Shareholders in both banks have voted overwhelmingly in favour of the takeover.
(Reporting by Mark Potter; Editing by Rupert Winchester, Bernard Orr)
LONDON (Reuters)