Shares in Lloyds TSB dropped 15 per cent yesterday as initial enthusiasm for the £12.2 billion rescue of HBOS evaporated.

Last night Moody’s, the ratings service, added to the disappointing market reaction by announcing plans to review both banks because their credit ratings may be downgraded.

Moody’s said that the planned combination posed “significant integration risks” and the two banks faced challenges because of market conditions.

Earlier, analysts said there was still some concern that the overdependence on wholesale funding, which was responsible for HBOS’s problems, could hit the combined group. It will still be reliant on this form of finance.

There was also shareholder disappointment that Lloyds put the prospective synergies from the deal at only “well over £1 billion a year” after three years. The relatively conservative figure may have been designed to soothe concerns over job losses, with some analysts arguing that £2 billion a year was possible from a combined cost base of more than £11 billion.

The dividend, which Lloyds finally managed to raise last year after a five-year freeze, will also be cut and the final dividend for 2008 will be paid in shares, not cash.

The slide in the Lloyds share price to 237½p also reduces the notional value of its offer for HBOS by £1.8 billion to £10.4 billion. HBOS shares rose by 17 per cent to 172.6p.

Lloyds is offering 0.83 new shares for each HBOS share. Existing Lloyds shareholders will own 56 per cent of the combined business with HBOS shareholders owning the other 44 per cent.

Sir Victor Blank and Eric Daniels, chairman and chief executive of Lloyds, will take the same roles in the enlarged group. Andy Hornby, chief executive of HBOS, is staying for now, but his long-term future is unclear.

Mr Hornby said that HBOS could have remained independent but there was a small risk it could have been capsized by the market turmoil: “I believe we could have continued to fund successfully, but I was not prepared to take that risk.”

He and Mr Daniels first met six weeks ago to discuss a deal. It was the ensuing collapse of the HBOS share price that finally persuaded ministers to waive the normal competition rules and allow the deal to go ahead.

Alistair Darling said yesterday that competition concerns might have been an issue “in normal, happier times”, but the deal was absolutely necessary.

Concerns about funding overshadowed the strong attractions of the deal, which will give the combined group a dominant market position in most areas of UK personal finance including mortgages, savings, personal loans and credit cards.

Mr Daniels said: “I rarely use superlatives, but this is a truly wonderful combination.”

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