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Up to 40,000 jobs, 600 branches and an asset or two could go as Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) aims to forge a UK “superbank” from its takeover of HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) at a time of industry turmoil and looming recession.

Once the deal completes, expected in mid-January, the newly named Lloyds Banking Group will face pressure to shrink its balance sheet, lift capital ratios and resume dividends. Lloyds investors will want a swift return to the core strengths shown in recent years when rivals were taking bigger risks.

The government-brokered deal to create Britain’s second biggest bank has been attacked as anti-competitive and angered investors on both sides, especially HBOS supporters in Scotland.

But 96 percent of Lloyds investors voted for it and HBOS has warned it could have to be nationalized without it, leaving little doubt its investors — including an army of 2 million small investors and big institutions with shares in both banks — will approve the deal on Friday.

“I’m regarding it as a done deal. The UK government has effectively blocked off any other option. There is no alternative for HBOS shareholders to vote for,” said Exane BNP Paribas analyst Ian Gordon.

One top fund manager, with shares in both banks, said: “Obviously there’s a small political lobby group involved but for shareholders the economics of the deal still make sense. For it not to go through would be unthinkable.”

Indeed, the problems facing an enlarged Lloyds, notably its exposure to the troubled UK economy, are the only reason the deal can go ahead free car insurance quotes. At any other time, regulators would have blocked the deal on competition grounds.

DARK HORSE

The enlarged bank will have market shares of roughly 30 percent for UK current accounts and 28 percent for mortgages, and a fifth or more of small business banking, savings, personal loans and credit cards.

“It is hardly surprising that in the current storm of writedowns, recession fears and uncertainty regarding political oversight, the virtues of the newly formed Lloyds Banking Group are not yet reflected in the share price,” said Mike Trippitt, analyst at Oriel Securities.

“The positive investment case … does require investors to extend their investment horizons,” he said, adding that the pricing power of the bank could also benefit consumers.

The Merger Action Group this week made a last-ditch legal challenge to derail the deal, claiming politicians bypassed competition law to push it through. A decision is due this week and HBOS is confident the case will fail.

For Lloyds Chief Executive Eric Daniels the credit crisis accelerated his plan to seek acquisitions.

The American, who took over in 2003 and is now the longest serving UK bank CEO, focused on returning the “black horse” to basics, which involved cheap funding, a strong capital position and a low risk appetite.

Lloyds will make a 10 billion pound fair value adjustment for HBOS’s assets to address concerns they are too risky. 

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