UKFI warns on bank splits

THE manager of the government’s stake in RBS and Lloyds defended the structure of the UK’s biggest banks, hitting back at advocates of splitting them into retail and investment arms yesterday.

Sir David Cooksey, chairman of UK Financial Investments, which administers the government’s shares in the lenders, argued that breaking up banks would destroy their value.

In the latest salvo in the debate over whether big universal banks should be split up to make them safer, Cooksey said trying to separate banks’ retail and investment banking arms would lead to “a diminution in value” at the institutions.

“We’ve looked at the dramatic separation option. It’s difficult to know the full implications, but it would clearly be negative for value,” he told the parliamentary Treasury Select Committee.

The Independent Commission on Banking is taking evidence on how to reform UK banks to ensure none are too big to fail in a future crisis. It has proposed forcing institutions to hive off their trading divisions to safeguard the low-risk deposit-taking retail businesses.

UKFI chief executive Robin Budenberg said the nationalised banks must be allowed to pay bonuses to stay competitive in the battle for top staff. “We understand that it is very difficult to justify the sort of bonuses that are paid at these banks,” he said. “But if we want to sell these shares, we have to make sure the banks are able to retain the talent.”