Tuesday 27 March 2012

Lloyds/HBOS and your Easter essay

We had a superb session from Richard Tolson of Lloyds Banking Group last week. Over Easter you need to write an essay based on the difficulties of integrating businesses successfully. Some ways which you might be able to use the Lloyds' example are shown in the paragraphs below ......

One of the problems of associated with takeovers and mergers is getting businesses with different cultures to work as a harmonious and effective whole, particularly in the short term. For instance, in the case of the “shotgun wedding” of Lloyds and HBOS of 2008, these two companies had very different approaches to risk and lending; with Lloyds being more  cautious in its approach to lending (i.e. lending less in relation to its capital reserves) and HBOS employing a higher risk strategy. Given the size of the new entity and given that Lloyds and HBOS had two very different organisational cultures there were bound to have been some coordination and communication diseconomies of scale in the early phases of integration. These organisational problems often take time to work through and businesses may not have the luxury of several years in which to turn performance around. This clash of cultures as a problem in mergers is also seen in the example of (PROVIDE YOUR OWN EXAMPLE TO COMPARE AND CONTRAST WITH THE LLOYDS EXAMPLE)

Another common problem firms face in implementing the change involved with a merger is in coping with external events. External events can really blow a merger off course and it can be tricky to separate the effects of the merger on a business’s performance from the effects of external events on performance. For instance, the Lloyds HBOS merger in its early days saw Lloyds share price nose-dive at an alarming rate and the government had to bail the new organisation out to the tune of £20 billion (largely as a result of write off of bad loans made by HBOS). Therefore on the face of it the merger appears to have been beset with problems and it will have been difficult for Lloyds to “sell” the merger as a success to its stakeholders. However, how many of these issues were down to the general economic malaise which affected all banks and to what extent they were due to the integration process on Lloyds Banking Group is incredibly hard to disentangle. Another merger where external events appear to have added to the difficulty of integrating businesses is  (AGAIN, PROVIDE YOUR OWN EXAMPLE TO COMPARE AND CONTRAST WITH THE LLOYDS EXAMPLE)

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