Lloyds’ takeover of HBOS last summer now seems a monumental disaster. Which begs the question why did Lloyds do it? I guess there is an element of human nature that likes to think that we have passed through the worst. Perhaps, last summer Lloyds believed the worst of the banking disaster was behind us and therefore did the deal with HBOS believing the ratio of bad debt was likely to remain at last summer’s levels. Big mistake - and given the intelligence and experience of those on the Lloyds board, this seems unlikely. No, having lived through the media feast that covered the banking crisis, my impression was that Lloyds were given a fait accomplis by the government. “Buy” HBOS, we’ll make it worth your while and we’ll sort out the details later. My evidence for this? Well clearly, unless you were in a room with Eric Daniels, Gordon Brown and Alistair Darling, we are never going to know but again the question comes back to why. Why would Daniels, a man with a history of conservative banking, decide to gamble everything on the HBOS merger at a time of massive uncertainty and risk in the economy? I can’t understand why he would go ahead with the merger. One explanation is that he was being selfless. If HBOS failed, the shock waves that would be sent through the UK economy would go off the richter scale. So the government could not allow that to happen. However, at the time, Northern Rock was the most recent political disaster and so the government couldn’t be seen to take a second bank into the public sector. No, they needed HBOS to be taken over by another bank. Foreign banks, for obvious reasons, wouldn’t touch HBOS and the UK government had no influence over them in any case. We know that Barclays and Lloyds were approached; Barclays said no, Lloyds said yes and the rest is history. What we don’t know is why Lloyds said yes. If it was a massive error, OK add it to the “bankers list” of massive errors. But was it something else? Once Barclays has said no (& we’ve seen them stand up to the government throughout the banking crisis) Gordon had to make Lloyds take HBOS. Things must have got pretty fraught. Did he threaten Daniels? Seems unlikely; at that stage Gordon needed Daniels more than Daniels needed the Prime Minister. Did Gordon promise something to Daniels? What on earth could he promise to make Daniels take a career defining gamble on the future of one of Britain’s best banks? If there was deal, time, in the end, will tell.