Lloyds TSB Group plc (incorporated under the Companies Act 1985 and registered in Scotland with Registered No )

Transcription

1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised independent financial adviser. This document does not constitute or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security, in any jurisdiction in which such an offer, an invitation or a solicitation is unlawful. A copy of this document, which comprises a supplementary prospectus relating to the Open Offer Shares and the Consideration Shares prepared in accordance with the Prospectus Rules made under section 73A of FSMA, has been filed with the FSA and has been made available to the public as required by section 3.2 of the Prospectus Rules. This document has been approved as a supplementary prospectus under section 87A of FSMA. This document is supplemental to and must be read in conjunction with the prospectus published by Lloyds TSB on 18 November 2008 (the Prospectus ). Save as disclosed in this document, since the publication of the Prospectus, there have been no other significant new factors, material mistakes or inaccuracies relating to the information included in the Prospectus. Unless otherwise defined in this document, capitalised terms used in this document have the meanings given to them in Part XXII Definitions of the Prospectus. To the extent that there is any inconsistency between a statement in this document and a statement in the Prospectus, the statement in this document will prevail. The Company has requested the FSA provides a certificate of approval and a copy of this document (and translated summary, where applicable) to the relevant competent authorities in Austria, Belgium, Cyprus, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Luxembourg, Malta, the Netherlands, Norway, Portugal, Romania, Spain and Sweden. Application will be made to the FSA for the Open Offer Shares and the Consideration Shares to be admitted to the Official List, and will be made to the London Stock Exchange for the Open Offer Shares and the Consideration Shares to be admitted to trading on the London Stock Exchange s main market for listed securities. It is expected that, subject to the satisfaction of certain conditions, Admission of the Open Offer Shares to the Official List and the London Stock Exchange will become effective, and that dealings in the Open Offer Shares will commence, on 13 January It is expected that Admission of the Consideration Shares to the Official List and the London Stock Exchange will become effective, and that dealings in the Consideration Shares will commence on 19 January If you sell or have sold or otherwise transferred all of your Lloyds TSB Shares you should send any Application Form, if and when received, as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer is/was effected for delivery to the purchaser or the transferee. However, the distribution of Application Forms, this document and/or any related documents into certain jurisdictions (including but not limited to the United States and the Restricted Jurisdictions) other than the United Kingdom is or may be restricted by law and therefore persons into whose possession any such documents come should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction. See section 6 ( Overseas Shareholders ) of Part VIII ( Terms and Conditions of the Placing and Open Offer ) of the Prospectus. If you sell or have sold or otherwise transferred only part of your holding of Lloyds TSB Shares, you should retain any such documents received. The Company and the Lloyds TSB Directors, whose names appear on page 20 of this document, accept responsibility for the information contained in this document. To the best of the knowledge of the Company and the Lloyds TSB Directors (who have taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and does not omit anything likely to affect the import of such information. Lloyds TSB Group plc (incorporated under the Companies Act 1985 and registered in Scotland with Registered No ) Supplementary Prospectus Relating to the proposed Placing and Open Offer of 2,596,653,203 Open Offer Shares at pence per Open Offer Share and the proposed issue of up to 7,873,180,756 Consideration Shares in connection with the proposed acquisition of HBOS plc Citi Merrill Lynch International UBS Investment Bank Joint Sponsor, Joint Bookrunner, Joint Placing Agent and Joint Financial Adviser Joint Sponsor, Joint Bookrunner, Joint Placing Agent and Financial Adviser Lazard Financial Adviser Joint Sponsor, Joint Bookrunner, Joint Placing Agent and Joint Financial Adviser Investors should only rely on the information contained in this document, the Prospectus and the documents incorporated into the Prospectus or herein by reference and in particular investors should review the Risk Factors set out on pages 9 to 26 of the Prospectus and page 6 of this document for a discussion of certain factors that should be considered when deciding whether to invest in Consideration Shares or Open Offer Shares. No person has been authorised to give any information or make any representations other than those contained in the Prospectus or this document and, if given or made, such information or representations must not be relied upon as having been so authorised. The Consideration Shares and the Consideration ADSs will not be, and are not required to be, registered under the Securities Act in reliance upon the exemption from the registration requirements of the Securities Act provided by section 3(a)(10) thereof. The Open Offer Shares have not been and will not be registered under the Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, resold, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of the Consideration Shares, Consideration ADSs or the Open Offer Shares in the United States. Neither the SEC nor any other US federal or state securities commission or regulatory authority has approved or disapproved the Consideration Shares, the Consideration ADSs or the Open Offer Shares or passed an opinion on the adequacy of this document. Any representation to the contrary is a criminal offence in the United States. Shareholders or holders of Lloyds TSB ADSs who are or become affiliates (within the meaning of the Securities Act) of Lloyds TSB will be subject to restrictions on the resale of the Consideration Shares, Consideration ADSs or Open Offer Shares in the United States. The securities mentioned herein may not be offered, sold, resold, transferred or delivered, directly or indirectly, in any Restricted Jurisdiction absent registration or an applicable exemption from the registration requirements of the relevant laws of any Restricted Jurisdiction. There will be no public offer of such securities in any Restricted Jurisdiction. Citi, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Lloyds TSB and for no one else as joint sponsor, joint bookrunner and joint placing agent (and also in providing financial advice in relation to the Acquisition) in relation to the Placing and Open Offer and the listing of the Open Offer Shares and the Consideration Shares on the Official List and their admission to trading on the London Stock Exchange s main market for listed securities, and will not be responsible to any other person for providing the protections afforded to clients of Citi nor for providing advice in connection with the Placing and Open Offer or the Acquisition, proposed listing or admission to trading or contents of this document or any other matters referred to in this document. Lazard is acting exclusively for Lloyds TSB and for no one else in providing financial advice in relation to the Acquisition and will not be responsible to any other person for providing the protections afforded to clients of Lazard nor for providing advice in connection with the Acquisition, proposed listing or admission to trading or contents of this document or any other matters referred to in this document. Merrill Lynch, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Lloyds TSB and for no one else as joint sponsor, joint financial adviser, joint bookrunner and joint placing agent in relation to the Acquisition, the Placing and Open Offer and the listing of the Open Offer Shares and the Consideration Shares on the Official List and their admission to trading on the London Stock Exchange s main market for listed securities, and will not be responsible to any other person for providing the protections afforded to clients of Merrill Lynch nor for providing advice in connection with the Placing and Open Offer or the Acquisition, proposed listing or admission to trading or contents of this document or any other matters referred to in this document. UBS is acting exclusively for Lloyds TSB and for no one else as joint sponsor, joint financial adviser, joint bookrunner and joint placing agent in relation to the Acquisition, the Placing and Open Offer and the listing of the Open Offer Shares and the Consideration Shares on the Official List and their admission to trading on the London Stock Exchange s main market for listed securities, and will not be responsible to any other person for providing the protections afforded to clients of UBS nor for providing advice in connection with the Placing and Open Offer or the Acquisition, proposed listing or admission to trading or contents of this document or any other matters referred to in this document. Dated: 17 December 2008

2 Apart from the responsibilities and liabilities, if any, which may be imposed on any of Citi, Lazard, Merrill Lynch or UBS by FSMA or the regulatory regime established thereunder, each of Citi, Lazard, Merrill Lynch and UBS accepts no responsibility whatsoever for the contents of this document and/or the information incorporated herein by reference, including in relation to the accuracy, completeness and/or verification thereof, and/or for any other statement made or purported to be made by any of them, or on behalf of any of them, in connection with the Lloyds TSB Group, the HBOS Group, the Enlarged Group, the Consideration Shares, the Consideration ADSs, the Open Offer Shares, the Acquisition, the Placing, the Open Offer, the New Preference Share Issue, the Capitalisation Issue or any other matter referred to in this document. Each of Citi, Lazard, Merrill Lynch and UBS accordingly disclaims all and any liability whatsoever arising in tort, contract or otherwise (save as referred to above) which any of them might otherwise have in respect of this document or any such statement. Without prejudice to any obligation of Lloyds TSB to publish a further supplementary prospectus pursuant to section 87G of the FSMA and Rule 3.4 of the Prospectus Rules, neither the delivery of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of Lloyds TSB since the date of this document or that the information in this document is correct as at any time subsequent to its date. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO US INVESTORS Lloyds TSB is offering and selling Open Offer Shares in the United States, and each of Citi, Merrill Lynch and UBS may arrange for the offer and sale of Open Offer Shares that have not been taken up in the Open Offer in the United States, only to persons reasonably believed to be qualified institutional buyers within the meaning of Rule 144A under the Securities Act ( QIBs ) in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Open Offer Shares offered and sold outside the United States are being offered and sold in reliance on Regulation S under the Securities Act. In addition, until 40 days after the commencement of the Open Offer, an offer, sale or transfer of the Shares within the United States by a dealer (whether or not participating in the Open Offer) may violate the registration requirements of the Securities Act. The Consideration Shares and the Consideration ADSs will not be, and are not required to be, registered under the Securities Act in reliance upon the exemption from registration under the Securities Act provided by section 3(a)(10) thereof. 2

3 GENERAL NOTICE The contents of this document and the information incorporated herein by reference should not be construed as legal, business or tax advice. This document is for your information only and nothing in this document is intended to endorse or recommend a particular course of action. Each prospective investor should consult his, her or its own legal adviser, financial adviser or tax adviser for advice. PRESENTATION OF INFORMATION ENLARGED GROUP Unless the context otherwise requires, references in this document to the Enlarged Group are to Lloyds TSB and its subsidiaries and subsidiary undertakings and, where the context requires, its associated undertakings as constituted immediately following completion of the Acquisition and therefore such references include the Lloyds TSB Group as enlarged by the HBOS Group. Completion of the Acquisition and the Placing and Open Offer is subject to a number of conditions which are described in detail in Part VI ( Information on the Acquisition ) and Part VIII ( Terms and Conditions of the Placing and Open Offer ) of the Prospectus. NO PROFIT FORECAST No statement in this document or incorporated by reference into this document is intended to constitute a profit forecast or profit estimate for any period, nor should any statement be interpreted to mean that earnings or earnings per share will necessarily be greater or lesser than those for the relevant preceding financial periods for either Lloyds TSB or HBOS, as appropriate. ROUNDING Certain figures included in this document and in the information incorporated by reference into this document have been subject to rounding adjustments. Accordingly, discrepancies in tables between the totals and the sums of the relevant amounts are due to such rounding. WEBSITES Neither the content of the Lloyds TSB Group s nor HBOS s website (or any other website) nor the content of any website accessible from hyperlinks on the Lloyds TSB Group s nor HBOS s website (or any other website) is incorporated into, or forms part of, this document. TIME All references in this document to times are to UK time unless otherwise stated. 3

4 TABLE OF CONTENTS Page PART I SUPPLEMENTARY SUMMARY 5 PART II RISK FACTORS 6 PART III OTHER IMPORTANT INFORMATION 7 PART IV HBOS TRADING UPDATE 9 PART V UPDATE ON THE ACQUISITION AND THE PLACING AND OPEN OFFER, PAYMENT PROTECTION INSURANCE AND CERTAIN OTHER MATTERS 11 PART VI INFORMATION FOR OVERSEAS SHAREHOLDERS 12 PART VII ADDITIONAL INFORMATION 20 4

5 PART I SUPPLEMENTARY SUMMARY This document is supplemental to, and should be read in conjunction with, the Prospectus. Following the publication of the Prospectus, HBOS issued, on 12 December 2008, a trading update in anticipation of the launch of its proposed placing and open offer and in advance of the HBOS shareholder meetings held on such date to approve its placing and open offer and the acquisition of HBOS by Lloyds TSB. Lloyds TSB regards this information as a significant new factor relating to information contained in the Prospectus and, accordingly, has prepared and published this document in accordance with Section 87G of FSMA and the Prospectus Rules. Save as disclosed in this document, there is no further information that is required to be disclosed in this supplementary prospectus pursuant to Section 87G of FSMA or the Prospectus Rules. However, certain additional accompanying information concerning the Company (which is set out in Part II ( Risk Factors ) and Part V ( Update on the Acquisition and the Placing and Open Offer, Payment Protection Insurance and Certain Other Matters ) of this document) has been included in this document as such information has recently been publicly disclosed by the Company in its announcement published on 12 December 2008, and the Company believes it is in investors interests for such information to also be disclosed in this document. ANY DECISION TO INVEST IN CONSIDERATION SHARES OR OPEN OFFER SHARES SHOULD BE BASED ON A CONSIDERATION OF THE PROSPECTUS, THIS DOCUMENT AND THE DOCUMENTS INCORPORATED BY REFERENCE, AS A WHOLE. Where a claim relating to information contained in, or incorporated by reference into, this document is brought before a court, a plaintiff investor might, under the national legislation of the EEA States, have to bear the costs of translating this document before legal proceedings are initiated. Under the Prospectus Directive, in each member state of the European Economic Area ( EEA ), civil liability attaches to those persons who are responsible for this summary, including any translation of this summary, but only if this summary is misleading, inaccurate or inconsistent when read together with the other parts of this document and with the Prospectus (including information incorporated by reference). The summary below supplements Section 8 Current Trading, Trends and Prospects of Part I Summary of the Prospectus. 8. Current Trading, Trends and Prospects On 12 December 2008, HBOS issued a trading update (the HBOS Trading Update ) in anticipation of the launch of its proposed placing and open offer and in advance of the HBOS shareholder meetings held on such date to approve its placing and open offer and the acquisition of HBOS by Lloyds TSB. The HBOS Trading Update is broadly consistent with the impairment analysis conducted by Lloyds TSB as part of its review process in October Whilst the fair value adjustments can only be finalised after the completion of the acquisition and in accordance with market conditions at that time, the additional impairment losses being incurred by HBOS are not currently expected to have a significant impact upon the size of the net negative capital adjustments the Group is likely to make upon acquisition. 5

6 PART II RISK FACTORS The following information has been included in this document as such information has recently been publicly disclosed by the Company in its announcement published on 12 December 2008, and the Company believes it is in investors interests for such information to also be disclosed in this document. The Risk Factors contained in the Prospectus with the same numbers as set out below are amended or deleted as follows: 1.16 In the United Kingdom, the Lloyds TSB Group is responsible for contributing to compensation schemes in respect of banks and other authorised financial services firms that are unable to meet their obligations to customers This Risk Factor is deleted and replaced by the following: In the United Kingdom, the FSCS was established under FSMA and is the UK s statutory fund of last resort for customers of authorised financial services firms. The FSCS can pay compensation to customers if a firm is unable, or likely to be unable, to pay claims against it. The FSCS is funded by levies on firms authorised by the FSA, including the Lloyds TSB Group and, it is expected, the Enlarged Group. The recent arrangements put in place to protect the depositors of Bradford & Bingley and other failed deposit-taking institutions involving the FSCS are expected to result in a significant increase in the levies made by the FSCS on the industry. Lloyds TSB anticipates making a provision of approximately 120 million in its 2008 accounts in respect of its current obligation for the estimated interest cost on the FSCS borrowings. Going forward further provisions in respect of these costs are likely to be necessary until the borrowings are repaid. The ultimate cost to the industry, which will also include the cost of any compensation payments made by the FSCS and if necessary the cost of meeting any shortfall after recoveries on the borrowings entered into by the FSCS, remains uncertain although it may be significant and the associated costs to the Lloyds TSB Group and/or the Enlarged Group may have a material impact on its results of operations and financial condition. 6

7 PART III OTHER IMPORTANT INFORMATION WITHDRAWAL RIGHTS Qualifying Shareholders are reminded of their statutory withdrawal rights in respect of the Open Offer pursuant to section 87Q(4) of FSMA, which arise upon the publication of this Supplementary Prospectus. As also set out in paragraph 4.3 ( Withdrawal rights ) of Part VIII ( Terms and Conditions of the Placing and Open Offer ) of the Prospectus, persons wishing to exercise or direct the exercise of statutory withdrawal rights pursuant to section 87Q(4) of FSMA after the issue by the Company of this document must do so by lodging a written notice of withdrawal within two Business Days of the date on which this document is published. The withdrawal notice must include the full name and address of the person wishing to exercise statutory withdrawal rights and, if such person is a CREST member, the participant ID and the member account ID of such CREST member. The notice of withdrawal must be deposited by hand (during normal business hours only) with Equiniti, The Causeway, Worthing, West Sussex BN99 6DA or by facsimile to Equiniti (please call Equiniti on , if calling from within the UK, or, if calling from overseas on between the hours of 8.30 a.m. and 5.30 p.m. for further details) so as to be received before the end of the withdrawal period. Notice of withdrawal given by any other means or which is deposited with Equiniti after such expiry of such period will not constitute a valid withdrawal. The Company will not permit the exercise of withdrawal rights after payment by the relevant person for the Open Offer Shares to which they are entitled in full, save to the extent required by statute. In such event, such persons are advised to seek independent legal advice. FORWARD-LOOKING STATEMENTS This document and the information incorporated by reference into this document includes certain forward-looking statements. Statements that are not historical facts, including statements about the Lloyds TSB Group s or the HBOS Group s or their respective directors and or management s beliefs and expectations are forward-looking statements. Words such as believes, anticipates, estimates, expects, intends, aims, potential, will, would, could, considered, likely, estimate and variations of these words and similar future or conditional expressions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur, many of which are beyond the Company s control and all of which are based on the Lloyds TSB Directors current beliefs and expectations about future events. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Lloyds TSB, HBOS or the Enlarged Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Lloyds TSB s, HBOS and the Enlarged Group s present and future business strategies and the environment in which the Enlarged Group will operate in the future. These forward-looking statements speak only as at the date of this document. Examples of such forward-looking statements include, but are not limited to, statements about expected benefits and risks associated with the Acquisition and the Placing and Open Offer, projections or expectations of profit attributable to shareholders, anticipated provisions or writedowns, economic profit, dividends, capital structure or any other financial items or ratios; statements of plans, objectives or goals of Lloyds TSB, HBOS or the Enlarged Group following completion of the Acquisition, including in relation to the achievement of anticipated cost synergies, other operating efficiencies, business growth opportunities, revenue and other benefits; statements about the future trends in interest rates, liquidity, foreign exchange rates, stock market levels and demographic trends and any impact that those matters may have on Lloyds TSB, HBOS or the Enlarged Group following completion of the Acquisition; statements concerning any future UK, US or other economic environment or performance; statements about strategic goals, competition, regulation, regulatory approvals, dispositions and consolidation or technological developments in the financial services industry; and statements or assumptions underlying such statements. 7

8 Lloyds TSB Shareholders and potential investors should specifically consider all of the information set out in, and incorporated by reference into this document before making any investment decision. In particular, Lloyds TSB Shareholders and potential investors should consider the risks, uncertainties and other factors are set out in Part II ( Risk Factors ) of this document, which include general risks relating to the Lloyds TSB Group and, if the Acquisition becomes Effective, the Enlarged Group, risks relating to the Acquisition, and risks relating to the Placing and Open Offer and to investment in Lloyds TSB Shares and Lloyds TSB ADSs. Except as required by the FSA, the London Stock Exchange, the Listing Rules, the Prospectus Rules, the Disclosure and Transparency Rules or any other applicable law or regulation, the Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document or incorporated by reference into this document to reflect any change in the Company s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 8

9 PART IV HBOS TRADING UPDATE On 12 December 2008, HBOS issued a trading update (the HBOS Trading Update ) in anticipation of the launch of its proposed placing and open offer and in advance of the HBOS shareholder meetings held on such date to approve its placing and open offer and the acquisition of HBOS by Lloyds TSB. The HBOS Trading Update is broadly consistent with the impairment analysis conducted by Lloyds TSB as part of its review process in October Whilst the fair value adjustments can only be finalised after the completion of the acquisition and in accordance with market conditions at that time, the additional impairment losses being incurred by HBOS are not currently expected to have a significant impact upon the size of the net negative capital adjustments the Group is likely to make upon acquisition. The full text of the HBOS Trading Update is set out below without adjustment. This supplements the information set out in the HBOS Interim Management Statement which was incorporated by reference into the Prospectus. Except where otherwise defined in the HBOS Trading Update, capitalised terms used in the HBOS Trading Update have the meanings given to them in Part XXIII Definitions of the HBOS Prospectus, which is incorporated by reference in this Supplement. TRADING UPDATE 12 DECEMBER 2008 The following Trading Update is being provided in anticipation of the launch of the proposed placing and open offer and in advance of the meetings to be held today at the NEC Birmingham, to approve that placing and open offer and acquisition of HBOS plc by Lloyds TSB Group plc. Group Overview Since the Interim Management Statement published on 3 November 2008, (the November IMS) the Group has been operating in increasingly difficult market conditions. There has recently been an acceleration in the deterioration in credit quality, and further sharp falls in estimated asset values. In addition, pressure is building on net interest margins due to the significant reductions in UK base rates. Wholesale funding costs, including funds obtained under UK Government guarantee, remain high relative to base rate and by historical standards. Deposit flows have improved with Retail inflow in November. Divisional Review Retail As stated in the November IMS, the Retail net interest margin remains stable relative to that reported for the first half of 2008, but will come under additional pressure due to the impact of recent base rate cuts. There has been a deterioration in the trend in secured lending arrears which, taken together with continued sharp declines in house prices, has resulted in an estimated secured lending impairment charge of 0.7bn for the 11 months to 30 November 2008 ( 0.4bn 30 September; 0.2bn 30 June 2008). The estimated impairment charge for unsecured lending arrears is 1.0bn for the 11 months to 30 November 2008 ( 0.8bn 30 September 2008; 0.5bn 30 June 2008). In light of the worsening economic climate, trends in Retail impairment charges are likely to come under further pressure. Corporate Corporate credit conditions have continued to deteriorate significantly since the November IMS. This has resulted in an estimated impairment charge of 3.3bn for the 11 months to 30 November 2008 ( 1.7bn 30 September 2008; 0.5bn 30 June 2008). This charge reflects an increase in the migration of exposures into the higher risk and impaired categories and sharp declines in asset values with a consequent impact on estimated recoveries. These factors are expected to continue to impact results in the short to medium term. Recent pronounced falls in the estimated valuations of property and other investments have impacted significantly on the value of the HBOS investment portfolio with an estimated loss of 0.8bn for the 11 months to 30 November 2008 ( 0.1bn loss 30 September 2008; 0.1bn profit 9

10 30 June 2008). Investment valuations are expected to remain under significant pressure in our private equity and joint venture businesses. Insurance & Investment Consistent with the November IMS, our Insurance & Investment division continues to make a good contribution to Group results. From January 2009, we will move to offering our personal loan customers a more flexible regular premium payment protection product to protect against accident, sickness and unemployment; this will defer the timing of Group profit recognition in 2009 and later years. International The sale of BankWest and St Andrew s Insurance in Australia received approval from the Australian Competition and Consumer Commission (ACCC) on 10 December 2008 and is expected to complete by the end of December Credit conditions continue to deteriorate in Australia, Ireland and North America and this has resulted in some increase in impairment charges. Treasury Portfolio As at 30 November the estimated losses due to market dislocation totalled 2.2bn ( 1.8bn 30 September 2008; 1.1bn 30 June 2008), including impairment losses in the Banking Book of 0.6bn ( 0.5bn 30 September 2008; nil 30 June 2008). In light of increasing illiquidity in the markets for asset backed securities (ABS), HBOS has changed the classification of ABS in the Banking Book from Available for Sale (AFS), where they were carried at fair value of 35.4bn as at 31 October 2008, to Loans and Receivables at the same carrying value. Following this change in classification these securities are no longer subject to measurement at fair value, although they will continue to be subject to regular impairment testing. For the period to 30 November 2008, estimated negative Fair Value Adjustments (FVAs) in respect of the Banking Book totalled on a post tax basis 4.5bn after the reclassification to Loans and Receivables. Market dislocation losses reflect deteriorating market conditions and credit downgrades, including downgrades to monoline insurers in November Exposure to monolines calculated on our own internal methodology totalled 1.2bn at 30 November 2008 ( 1.1bn 30 September 2008; 0.7bn 30 June 2008). At 30 November 2008, 84.4% of our ABS portfolio by nominal value was rated AAA, 5.3% AA and 3.1% A, compared to 88.3%, 6.4% and 2.0% as at 30 September Financial Services Compensation Scheme (FSCS) The Financial Services Authority (FSA) has issued draft guidance regarding the levies to be made by the FSCS to enable it to fulfil its obligations and compensate deposit customers of failing banks. Based on the information currently available, HBOS is likely to accrue a charge of around 200m in 2008 in respect of the FSCS levy. Outlook Global market and economic conditions, UK recession and increasing unemployment will continue to present a particularly challenging operating and credit environment. Lower interest rates should ease the debt burden but exert further pressure on net interest income. These factors will impact on HBOS capital ratios. However, through the injection of capital and liquidity facilitated by the UK Government, both currently and going forward, HBOS remains confident in its ability to navigate through this difficult period, as it becomes part of the enlarged Lloyds Banking Group. 10

11 PART V UPDATE ON THE ACQUISITION AND THE PLACING AND OPEN OFFER, PAYMENT PROTECTION INSURANCE AND CERTAIN OTHER MATTERS The information in paragraphs 2 to 4 below has been included in this document as such information has recently been publicly disclosed by the Company in its announcement published on 12 December 2008, and the Company believes it is in investors interests for such information to also be disclosed in this document. 1. The Acquisition and the Placing and Open Offer On 19 November 2008, Lloyds TSB Shareholders voted at the Lloyds TSB General Meeting to approve, among other things, the Acquisition and to pass various resolutions in connection with the Placing and Open Offer. All of the Resolutions, as set out in the Circular, were passed by a significant majority. HBOS announced on 12 December 2008 that its shareholders had, at the HBOS shareholder meeting convened by the Court for the purposes of sanctioning the Scheme, voted in favour of the acquisition of HBOS by Lloyds TSB by approving the Scheme without modification. Lloyds TSB expects that the Scheme will become effective on 16 January 2009, following the Reduction Court Hearing. Following HBOS s announcement on 12 December 2008 that its shareholders had approved the Scheme, Lloyds TSB posted Application Forms to Qualifying Non-CREST Shareholders on 12 December Open Offer Entitlements and Excess CREST Open Offer Entitlements were credited to stock accounts of Qualifying CREST Shareholders in CREST by 15 December The latest time for receipt of completed Application Forms and settlement of relevant CREST instructions is 11a.m. on 9 January Closing of the Placing and Open Offer and the issue of Open Offer Shares is conditional upon, among other things, the sanction of the Scheme by the Court, which is expected to take place on 12 January Payment Protection Insurance Lloyds TSB announced on 12 December 2008 that it will be launching a monthly premium, payment protection insurance ( PPI ) product for personal loan customers in January 2009 to replace its existing single premium policy. The transition to this new product is expected to reduce Lloyds TSB s income by around 300 million over the next twelve months, largely as a result of a change in the timing of income recognition. The financial impact of this timing of income recognition in future years remains uncertain but the Group currently expects ongoing monthly product revenues to materially offset the reduction in annual income generation over a three year period. 3. Financial Services Compensation Scheme In addition, the recent arrangements put in place to protect the depositors of Bradford & Bingley and other failed deposit-taking institutions involving the Financial Services Compensation Scheme ( FSCS ) will result in a significant increase in the levies made by the FSCS on the industry. Lloyds TSB anticipates making a provision of approximately 120 million in its 2008 accounts in respect of its current obligation for the estimated interest cost on the FSCS borrowings. Going forward further provisions in respect of these costs are likely to be necessary until the borrowings are repaid. The ultimate cost to the industry, which will also include the cost of any compensation payments made by the FSCS and if necessary the cost of meeting any shortfall after recoveries on the borrowings entered into by the FSCS, remains uncertain although it may be significant. 4. Bradford & Bingley The Group has also written off the total value of its investment in Bradford & Bingley, acquired as part of the sub-underwriting of the Bradford & Bingley rights issue earlier in the year, amounting to approximately 30 million. 11

12 PART VI INFORMATION FOR OVERSEAS SHAREHOLDERS NOTICE TO ALL INVESTORS Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any information contained in, or incorporated by reference into, this document for any purpose other than considering an investment in the Consideration Shares and/or Open Offer Shares is prohibited. By accepting delivery of or accessing this document, each offeree of the Consideration Shares and Open Offer Shares agrees to the foregoing. The distribution of this document and/or the Application Forms and/or the transfer of the Consideration Shares and Open Offer Shares into jurisdictions other than the United Kingdom, Austria, Belgium, Cyprus, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Luxembourg, Malta, the Netherlands, Norway, Portugal, Romania, Spain and Sweden may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, such documents should not be distributed, forwarded to or transmitted in or into the United States or the Restricted Jurisdictions. The Application Forms and the Consideration and Open Offer Shares are not transferable, except in accordance with, and the distribution of this document is subject to, the restrictions set out in this Part A of Part III of the Prospectus. No action has been taken by Lloyds TSB that would permit an offer of the Consideration Shares and Open Offer Shares or possession or distribution of this document or any other offering or publicity material or the Application Forms in any jurisdiction where action for that purpose is required, other than in the United Kingdom, Austria, Belgium, Cyprus, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Luxembourg, Malta, the Netherlands, Norway, Portugal, Romania, Spain and Sweden. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by Lloyds TSB. In making an investment decision, each investor must rely on their own examination, analysis and enquiry of Lloyds TSB, HBOS, the Enlarged Group and the terms of the Acquisition and Placing and Open Offer. In connection with the Acquisition and the Placing and Open Offer, each of the Joint Bookrunners and any of their respective affiliates, acting as an investor for its own account, may take up Consideration Shares and/or Open Offer Shares and in that capacity may retain, purchase or sell for its own account such Consideration Shares and/or Open Offer Shares and/or related investments and may offer or sell such Consideration and Open Offer Shares or other investments otherwise than in connection with the Acquisition and the Placing and Open Offer. Accordingly, references in this document to Consideration Shares and Open Offer Shares being offered or placed should be read as including any offering or placement of Consideration Shares and Open Offer Shares to any of the Joint Bookrunners or any of their respective affiliates acting in such capacity. None of the Joint Bookrunners intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. Notice to Investors in the European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State ) an offer to the public of any Lloyds TSB Shares may not be made in that Relevant Member State, other than in the United Kingdom, Austria, Belgium, Cyprus, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Luxembourg, Malta, The Netherlands, Norway, Portugal, Romania, Spain and Sweden once this document has been approved by the UK Listing Authority, as competent authority in the United Kingdom, and published and passported in accordance with the Prospectus Directive as implemented in Austria, Belgium, Cyprus, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Luxembourg, Malta, The Netherlands, Norway, Portugal, Romania, Spain and Sweden, except that an offer to the public in that Relevant Member State of any Lloyds TSB Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: 12

13 (a) (b) (c) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than c43,000,000 and (3) an annual net turnover of more than c50,000,000, as shown in its last annual or consolidated accounts; to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or (d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Lloyds TSB Shares shall result in a requirement for the publication of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer to the public in relation to any Lloyds TSB Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Lloyds TSB Shares to be offered so as to enable an investor to decide to purchase any Lloyds TSB Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. Notice to Investors in Australia This document is not an Australian law compliant prospectus for the purposes of Divisions 3, 4 and 5 of Part 6D.2 of the Corporations Act (other than section 718) and sections 728(1)(b) and (c), 728(3)(b), 730(1)(b) and (c), 734 and 735 of the Corporations Act. This document has been prepared in accordance with the instrument of relief issued by the Australian Securities and Investments Commission on 13 November 2008, numbered Accordingly the information disclosed in this document may not be the same as that which would have been disclosed if this document had been prepared in accordance with Australian law. This document will be lodged with the Australian Securities and Investments Commission. The Lloyds TSB Shares issued to Lloyds TSB Shareholders under the Open Offer will be issued for the purpose of raising equity capital and not for the purpose of existing Lloyds TSB Shareholders on-selling or transferring them. Notice to Investors in Bermuda The Lloyds TSB Shares are being offered on a private basis to investors who satisfy criteria outlined in this document and the Prospectus. The document and the Application Form are not subject to, and have not received approval from, either the Bermuda Monetary Authority or the Registrar of Companies in Bermuda and no statement to the contrary, explicit or implicit, is authorised to be made in this regard. The Lloyds TSB Shares being offered may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act 2003 of Bermuda. Additionally, non- Bermudian persons may not carry on or engage in any trade or business in Bermuda unless such persons are authorised to do so under applicable Bermuda legislation. Notice to Investors in Canada The distribution of securities offered in Canada (the Canadian Offering ) pursuant to the Canadian offering memorandum, which incorporates by reference the Prospectus and all documents incorporated by reference herein, the ( Canadian Offering Memorandum ), is being made in each of the Provinces of Canada (individually, a Canadian Jurisdiction and collectively, the Canadian Jurisdictions ) solely on a private placement basis exempt from the prospectus and registration requirements of applicable securities laws in each of the Canadian Jurisdictions as part of the concurrent Placing and Open Offer of Open Offer Shares. Any certificates representing the securities offered pursuant to this document may bear legends required or desirable under applicable securities laws or policies. The Canadian Offering is being made solely by the Canadian Offering Memorandum, and any decision to purchase pursuant to the Canadian Offering should be based solely on information contained in the Canadian Offering Memorandum and subject to the conditions described therein. No person has been authorised to give any information or to make any representations concerning the Canadian Offering other than as contained in the Canadian Offering Memorandum. 13

14 Lloyds TSB is not a reporting issuer in any province or territory in Canada and its securities are not listed on any stock exchange in Canada and there is currently no public market for the securities described herein in Canada. Lloyds TSB currently has no intention of becoming a reporting issuer in Canada, filing a prospectus with any securities regulatory authority in Canada to qualify the resale of the securities described herein to the public, or listing the securities described herein on any stock exchange in Canada. Accordingly, to be made in accordance with securities laws, any resale of the securities described herein in Canada must be made under available statutory exemptions from registration and prospectus requirements or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Canadian readers are advised to seek legal advice prior to any resale of the securities offered hereby. By its receipt of this document, each Canadian investor confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la reception de ce document, chaque investisseur canadien confirme paries présentes qu il a expressement exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d achat ou tout avis) soient rédigés en anglais seulement. Canadian readers should be aware that the financial statements and other financial information contained in this document have been prepared in accordance with IFRS and thus may not be comparable to financial statements and financial information of Canadian companies. Holding and disposing of the securities offered under the Prospectus and this document may have tax consequences in Canada and other jurisdictions that are not described in this document. Canadian readers are advised to consult their tax advisers. Lloyds TSB is formed under the laws of a jurisdiction outside Canada. All of the directors and officers of Lloyds TSB may be located outside Canada and, as a result, it may not be possible for purchasers to effect service of process within Canada upon Lloyds TSB or such persons. All or a substantial portion of the assets of Lloyds TSB may be located outside Canada and, as a result, it may not be possible for purchasers to satisfy or collect a judgement in Canada against Lloyds TSB or its directors and officers or to enforce a judgement obtained in Canadian courts against Lloyds TSB or such persons outside Canada. Neither this document nor the Canadian Offering Memorandum is, and under no circumstances is to be construed as, a prospectus, an advertisement or a public offering of these securities, in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon this document or the merits of the Lloyds TSB Shares, and any representation to the contrary is an offence. Notice to Investors in the Czech Republic This document has not been and will not be notified to, and it has not been and will not be approved by, the Czech National Bank of the Czech Republic. The Lloyds TSB Shares may only be offered in the Czech Republic to existing shareholders of Lloyds TSB. This document may only be distributed in the Czech Republic to the above defined investors, exclusively for their own use. The recipients of this document may not reproduce or distribute it or pass it on to any other person. Notice to Investors in Finland The Lloyds TSB Shares may not be offered or sold, or this document be distributed, directly or indirectly, to any resident of the Republic of Finland or in the Republic of Finland, except pursuant to applicable Finnish laws and regulations. Specifically, the Lloyds TSB Shares may not be offered or sold, or this document be distributed, directly or indirectly, to any resident of the Republic of Finland or in the Republic of Finland, other than to a maximum of 99 investors (under the Finnish Securities Market Act of 1989). This document has not been approved or notified to the Finnish Financial Supervision Authority. Notice to Investors in Hong Kong The contents of this document and the Application Form have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Acquisition and the Open Offer. If you are in any doubt about any of the contents of this document and/or the Application Form, you should obtain independent professional advice. Please note that (i) none of 14