The mission impossible to keep HBOS independent

Victory for the Scottish National Party (SNP) at the Glenrothes by-election was to have been the springboard for two fiercely patriotic Scottish grandees, Sir George Mathewson, formerly the chief executive at Royal Bank of Scotland, and Sir Peter Burt, who filled the same role at Bank of Scotland in the 1990s, to begin their campaign to wrestle Halifax Bank of Scotland (HBOS) from the clutches of Lloyds TSB.

But instead of launching their crusade in the afterglow of a famous SNP victory – Sir George gave his backing to Alex Salmond's party last year – Labour snatched Glenrothes from the nationalist clutches, eventually winning a healthy majority of more than 6,000 votes.

If Sir George and Sir Peter were looking for portents of how their campaign for HBOS might go in the early stages, then they had it with the surprise by-election loss. Their proposal, launched via an open letter to HBOS chairman Lord Stevenson under the now-customary cover of the weekend, eight days ago, hasn't been received well.

On the table is a "request" from the pair for HBOS's chairman, and its discredited chief executive, Andy Hornby, to resign. The four-page letter, on notepaper boldly headed with the swanky Berkeley Square address of the pair's corporate adviser – the City bruiser Stefan Allesch-Taylor from the boutique bank Fairfax (see opposite) – promised to "create a detailed plan that we believe will represent better value for both the HBOS shareholders and stakeholders by keeping HBOS as an independent bank".

The pair have said they believe HBOS could survive as a standalone operation by tapping into the Government's recapitalisation fund, details of which were announced after the tie-up between HBOS and Lloyds TSB.

But, so far, the City remains sceptical as to the merits of the rival HBOS management plan.

As the duo began hawking their skeletal plan around the streets of the Square Mile last week, the response from institutional investors was dismissive. "This is one massive ego trip for this pair," said one institutional investor with a stake in HBOS. "It smacks of huge arrogance to think that they can get HBOS out of the mire. They haven't exactly got unblemished records themselves anyhow. They should have stayed in retirement."

Another top 10 investor in the bank, who declined to be named, added: "When news of the pair's intervention surfaced, it caused a brief jump in the share price, which was nice, but it's since dropped back. If they had some ideas to go with the rhetoric then maybe it would have interested people a bit more than it has."

Support from institutions based north of the border has been in short supply too. Standard Life's powerful investment arm has perhaps gone the furthest by saying it was "looking" at the proposals, after initially giving its backing to the government- brokered tie-up with Lloyds.

Unite, the heavyweight trade union that originally lobbied against the HBOS-Lloyds deal, seems to have done a volte-face now, choosing to rubbish the knights' proposals instead.

The pair also managed to unite Gordon Brown and David Cameron in condemnation of their offer, with the Conservative leader saying: "All the evidence I have is that the best route forward is for Lloyds HBOS to go ahead. It's important for politicians not to try and hold out false hopes, as Alex Salmond has frankly been doing in Scotland."

Spooked by the prospect of the thousands of job cuts that will come as a result of the agreed tie-up – Royal Bank of Scotland said it was jettisoning 3,000 jobs last Friday too – Salmond has understandably sought to champion the pair, accusing the Government of "political hostility" to any rival proposal. He has urged the Prime Minister to maintain a "level playing field" for rival offers.

Alongside the nationalists, support for the HBOS pair's proposal has come from Pirc, the body that monitors corporate governance standards, and the UK Small Shareholders Association. The influential Association of British Insurers (ABI) has so far steered clear of making any comment on the deal or the rival proposal.

Faced with such large institutional indifference, it seems that the best chance of the pair derailing the arranged marriage with Lloyds will lie with small shareholders, which account for around 20 per cent of the bank's register. Sir George and Sir Peter need to persuade half of those retail investors to come on board if they are to requisition an extraordinary meeting ahead of the HBOS vote on the Lloyds deal on 12 December.

Part of the plan to recruit these smaller, notoriously difficult to mobilise investors was the belated launch of a website last Friday.

Sir Peter said they were building on the Barak Obama approach to fund-raising: "... instead of asking for money from the small shareholders, we're suggesting they might be getting more if they follow us."

So far the pair are claiming "several hundred emails" in support of their proposals. Earlier in the week they visited the Canary Wharf headquarters of the Financial Services Authority (FSA), meeting with senior figures at the City regulator.

It is thought that a supposed £10bn funding line from Lloyds to HBOS, not declared in Lloyds' circular on the deal, was top of the agenda.

So what's next for the sexagenarian duo, who have interrupted days on the golf course for a return to the boardroom instead?

"Simply more of the same, but after the initial discussions, the follow-ups inevitably need to happen behind closed doors," says a source close to the pair. "There was a report on the BBC the other day that talked about the possibility of thousands of jobs being lost in Scotland on the back of the Lloyds takeover of HBOS. A few weeks ago, that report would have painted the loss of those jobs as a certainty. If Sir George and Sir Peter's proposals have achieved anything, so far it's the change in tone from 'when' to 'if'. They have rightly put some doubt in people's mind sover this deal."

Earlier in the week, Sir Peter revealed that the decline in HBOS's share price – it now sits at around 56p, down from nearly 1,000p one year ago – has cost him millions.

Should Sir Peter's late-in-the-day foray to "rescue" HBOS fail, it will cost him more – and his personal reputation to boot.