In a letter to Scottish newspapers on 20 October, Mary Craig, chief executive of the Lloyds TSB Foundation for Scotland, warned that within seven weeks the foundation would make what might be its final grants to charities for an indefinite period. The board would be faced, she said, with little option but to wind down its operations.
Thanks to losses totalling £4bn at the Lloyds Banking Group, the foundation - which receives 1 per cent of the group's pre-tax profits through a covenant established by an act of Parliament in 1985 - will have no money to distribute in 2010. An offer by Lloyds of £25m of bridging funds over four years has been rejected by the foundation. The conditions attached to the package would turn it into a marketing arm of the banking group, according to Craig.
The offer is dependent on the foundation accepting a cut in the covenant from 1 per cent to 0.5 per cent of pre-tax profits, the placing of senior bank staff on its board and the ceding to the bank of decisions about where money is spent.
"They made it quite clear they wanted our funding aligned to their business," said Craig.
In a letter to The Scotsman, the group denied it was endangering the independence of the foundation. It said it wanted grants aligned with the fundraising activities of the group's Scottish staff and its overall aims.
The three other Lloyds TSB Foundations - for England & Wales, Northern Ireland and the Channel Islands - have been offered the same deal. They declined to comment on the discussions.
A counter-offer made by the Scottish foundation that the group give the £25m as an advance on its profits, to be repaid when it returns to the black, has been rejected. "We want the Scottish foundation to join the discussions we are having with the other three foundations, but despite repeated requests they have refused to do so," a group spokesman told Third Sector.
The group also said in the letter that the deal was good for the foundations because, thanks to Lloyds TSB's merger with HBOS in January, they would be getting "a slightly smaller slice of a substantially bigger pie".
However, the HBOS Foundation, which gave £8.3m to UK charities in 2007, was wound up after the merger.
"If you do the sums, as we have, the net result is still £4m a year less for the Scottish sector," says Lucy McTernan, deputy chief executive of the Scottish Council for Voluntary Organisations. "This is not a good deal for charities because ultimately there's not as much money coming through."