Lloyds wages war on Vickers report

Lloyds could challenge any attempt to force it to sell off hundreds of branches after the Independent Commission on Banking (ICB) yesterday recommended that the bank’s forced sale of assets be “substantially enhanced” to improve competition.

City A.M. understands that the legality of further forced sales is one of the issues that Lloyds will be exploring following the interim report’s release yesterday.

The ICB refused to give a figure for how many branches it could recommend that Lloyds sell over and above the 500 it is being forced to auction under European law.

But analysts are expecting the commission’s final report in September to recommend Lloyds sell an extra 200 to 400 branches – on top of the 600 already agreed – to partially undo the bank’s merger with HBOS. One analyst estimated a £100m hit to its pre-tax profit for every 100 branches sold.

ICB chair Sir John Vickers said yesterday that in order to aid competition in retail banking, “the Lloyds divestiture could and should be strengthened substantially”. Asked to provide details, he said only: “Substantially means substantially.”

But there are questions about the legality of any moves to force Lloyds to sell more of the branches it acquired during its merger with HBOS, for which the government explicitly waived competition law.

Baker & McKenzie partner Ian Mason said: “It’s certainly possible there might be some sort of legal challenge, even by shareholders… It would be very messy.”

Lloyds’s biggest shareholder is the British taxpayer, represented by the agency UKFI, which holds 41 per cent of the bank’s shares and has a mandate to maximise profit when selling them. The mandate puts UKFI on a collision course with the ICB.

Asked whether the commission could actually push through further branch sales, Vickers admitted its recommendations have no legal power. ICB member Martin Taylor said simply: “We would be grateful if UKFI would cooperate.”

The report suggests that the government “seek an agreement with Lloyds” on branch sales, rather than attempting to force them upon the bank. But Lloyds chief executive António Horta-Osório said: “We are surprised that the interim report is proposing a potential expansion of Project Verde [branch sales], which we believe is not in the interests of our customers. This option appears to be based on limited evidence.”

UKFI declined to comment.