Lloyds shareholders are prepared to let the bank's embattled management stay in their jobs despite last week's announcement of losses caused by the acquisition of Halifax Bank of Scotland (HBOS).
Pressure has mounted on Sir Victor Blank, Lloyds' chairman, and Eric Daniels, his chief executive, since Friday's statement shocked investors with £11bn of losses from HBOS' corporate bank and investments in toxic securities.
Only two days before at the Treasury Select Committee Mr Daniels had said Lloyds had found nothing unexpected in HBOS since buying the bank last month. But he admitted Lloyds had not checked the books of Britain's biggest mortgage lender as thoroughly as it would have liked before doing the deal.
A significant institutional shareholder in Lloyds said: “I don't see any reason to clamour for change at this stage. The people who have created the problem have now left the bank.”
“There is an element of them (Lloyds) being able to blame all the bad stuff on the HBOS guys but if it goes too far they endanger their own position.”
Another significant shareholder said: “Should any heads roll? I can't think that is going to help the situation. They feel suitably embarrassed and now the pressure is on but there isn't a wide gene pool out there of suitable unemployed bankers looking to be employed.”
Lloyds shares fell 8.4% yesterday on a volatile day for the stock as fears persisted that the bank may need more capital, forcing it closer to nationalisation. The shares fell by nearly a third on Friday.
The Government already owns 43% of the bank after bailing out HBOS and brokering its takeover by Lloyds, which did the deal to create a dominant UK retail bank.
Moody's cut Lloyds' senior debt rating by three notches to A1. The agency said the increased risks within HBOS would weaken Lloyds' profitability and capital and that Lloyds also faced the task of absorbing a larger but weaker bank.
Analysts at Citi, who have taken a tough line on banks' capital, increased their estimate of Lloyds' potential capital needs to £11.2bn from £3bn. After Friday's sketchy trading update, investors are looking for more detail of the losses and the outlook for HBOS's corporate bank when Lloyds reports 2008 results on February 27.
Lloyds led a drop in the value of subordinated bank bonds, which count as tier-one capital, to a record low on fears of nationalisation. Holders of the bonds would be low in the pecking order for repayment if a bank was nationalised. The Government, desperate to stop a run on the bank's shares, gave its strongest indications yet that it did not want to nationalise the bank.
“There's no active consideration being given to nationalisation” a spokesman for Gordon Brown said. “The Prime Minister takes the view he took in September: that this merger is in the wider interests of the stability of the financial system."
Stephen Timms, chief secretary to the Treasury, said the Government was “not contemplating” nationalisation.
Analysts at Cazenove said that Lloyds needed support against HBOS's losses from the Government's planned asset protection scheme, announced last month but not yet finalised.
“The announcement brings to the fore our original concerns that HBOS would drag Lloyds down with it rather than the acquirer affecting a rescue,” the analysts said.