Trustees of HBOS's pension scheme may seek to delay the group's merger with Lloyds TSB in court next month if the latter refuses to guarantee HBOS's pension scheme, an adviser to the trustees said.
By Cecilia Valente
He also warned that a refusal by Lloyds TSB to act as the direct sponsor for the HBOS pension fund could require the scheme to adopt a more cautious investment strategy, forcing the merged group to make far higher payments.
"If Lloyds cannot or would not do that, the trustees will not be able to take risks in return-seeking assets and they will have to take a more defensive strategy and that will lead to a bigger deficit to be made good in cash," the adviser told Reuters on Tuesday, requesting anonymity.
The comments come before a vote among HBOS trustees on Friday to decide whether they will seek to delay the merger at a January 12 court hearing on the Scheme of Arrangement, to allow negotiations on scheme sponsorship to take place.
A Lloyds spokeswoman said: "HBOS pension trustees and members of the HBOS Scheme can expect to see a strengthening of the supporting covenant.
"We will seek to give equivalent treatment to all pension schemes under the enlarged group and have made this clear to the HBOS trustees."
But the adviser to the HBOS Final Salary Pension Scheme said that the Lloyds's statement failed to offer the explicit guarantee sought by the HBOS trustees.
The trustees are concerned that the scheme will need to adopt a more defensive investment strategy if the sponsorship remains with HBOS, because its status would change to a subsidiary rather than a parent company.
The adviser said that, by contrast, an explicit Lloyds guarantee would enable the scheme to pursue returns as it aims to make good the funding gap.
"It is a bit like an underwriting that, if HBOS could not afford contributions or to support (the scheme), Lloyds would assist," the adviser said.
Earlier this month, the scheme's deficit was estimated at 3 to 5 billion pounds.
"We are not asking for something outrageous and unprecedented; it has been done before," the adviser said.
Shareholders of HBOS and Lloyds have voted overwhelmingly in favour of the takeover.
($1=.6881 Pound)
(Additional reporting by Victoria Bryan; Editing by Hans Peters)
LONDON (Reuters)