European Commission approves Lloyds restructure
Share
The European Commission has approved Lloyds Banking Group’s restructuring plans drafted to comply with state aid rules.
Over the last few weeks Lloyds Group, alongside fellow state-backed bank Royal Bank of Scotland, has announced plans to offload some of its retail and corporate banking assets following concerns that the banks have been given an unfair competitive advantage because of the government support they have received.
Lloyds Group is expected to sell up to 600 branches including all those of Cheltenham & Gloucester and some Lloyds TSB branches in Scotland, as well as its Intelligence Finance business.
The bank has also decided to opt out of the government’s Asset Protection Scheme, choosing instead to raise £21bn through a £13.5bn rights issue and £7.5bn debt-for-capital swap.
The lender also announced last week that it plans to cut up to 5,000 jobs by the end of 2010.
Speaking at a press conference in Brussels today Neelie Kroes, European Commissioner for Competition Policy Commission, says Lloyds Group’s focus will be core corporate and retail banking activities with Lloyds TSB’s more prudent risk management methods.
Kroes says the competition commission supports the capital raising as it minimises taxpayer burdens and the additional capital will see the bank through any unforeseen problems.
She adds: “Overall, the commission found that the plan limits distortions of competition and moral hazard (meaning the danger that a company may take excessive risks if it considers that it will not have to pay for the consequences itself).
“We strongly believe that proposed divestments on the UK retail market are substantial and will improve competition in the long-term.
“The proposed divestments will create an entity with a market share of around 5% in the retail banking market, and a solid footing in mortgage and small and medium-sized enterprise markets.
“The new bank will have a good geographical spread and at least 600 branches. It’s a great deal.”
Paul Myners, financial services secretary to the Treasury, says: “With the bank now on a more secure footing, we can begin work to make sure Lloyds Group plays its part in reforming and repairing the banking system for the future.
“The divestments Lloyds will make following today’s approval will lead to an important shake-up of the UK retail banking market.
“Together with divestments from RBS and the eventual sale of Northern Rock consumers could have three new banks competing for their business on the High Street within four years.”
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
