JUST six months after the publication of the Independent Commission on Banking’s final report, Sir John Vickers’ recommendations on boosting competitiveness are falling on deaf ears.
Initially, Vickers recommended in his interim report that Lloyds be made to sell “substantially” more than the 632 branches it is being forced to put on the block to satisfy European rules on state aid. Only then, said Vickers, would a credible “challenger bank” be created, with the strength to take on the Big Five: RBS, Santander, Lloyds, HSBC and Barclays.
In his final report, Vickers watered down this recommendation after being nobbled by the Treasury. He conceded that a sale of 632 branches would be fine, but only if they were sold to a bidder that already had a foothold in the UK banking market. Unless the new bank had a six per cent share of the personal current account market, said Vickers, it would struggle to attract new customers, allowing the large incumbent banks to keep their advantage.
The bank that is being sold by Lloyds, known as Verde, will only have a 4.6 per cent share, so the buyer would ideally have a market share of around two per cent. Enter The Co-operative, which was named as the preferred bidder in December, but whose offer now looks close to collapsing.
At the time, the Co-operative suited everybody. Lloyds wanted to sell the branches to someone who already owned a banking network, because the sale would be less likely to fall through. Vickers would be happy because, following the acquisition, the Co-op would have a combined 6.6 per cent share. And the government, which owns most of Lloyds, was happy to see it go to a co-operative organisation.
Alas, the Co-operative’s bid is in serious trouble. Talks with the FSA are taking far longer than they should be, suggesting the City watchdog is concerned about the Co-operative’s ability to pull off such a large acquisition. The group is struggling to appoint a banking chief executive while its supermarket business is floundering. Yesterday, we learned that Lord Levene’s start up NBNK, beaten in the first round, is back with a new bid.
If Co-operative does walk away, Lloyds has two choices. Sell to NBNK (there are no other serious buyers) or flog the branches through an IPO. Neither option will satisfy Vickers’ insistence that the new bank have a market share of over six per cent.
At any rate, the real reason banks are so uncompetitive lies in over-regulation. The rules surrounding how much and what kind of capital they must keep against every loan are so onerous that it is virtually impossible to compete on price.
The Vickers report, heralded as the biggest shake-up of banking in a generation, has gone from a fudge to a white-wash.