OSBORNE SNUBS VICKERS ON LLOYDS BRANCH SALES
THE Treasury has issued a remarkable snub to Sir John Vickers, chair of the Independent Commission on Banking (ICB), by distancing itself from the main recommendation contained in his interim report on the future of Britain’s banks, City A.M. has learned.
Sir John had called for Lloyds to sell “substantially” more than the current 620 branches that are on the block in a bid to boost competition in the retail banking sector.
But City A.M. understands that the Treasury is happy for Lloyds to proceed as planned with a sale of just 620 branches, making it all but impossible for Vickers’ key recommendation to be implemented and throwing into question the government’s commitment to the commission’s report.
Lloyds will kick off the sale process as early as this week by sending out an information memorandum to potential bidders, likely to include Virgin Money, NBNK Investments, National Australia Bank and Spain’s BBVA, who will then begin due diligence on the assets.
But Vickers, whose recommendations chancellor George Osborne has promised to implement in full, has said the sale needs to be “substantially enhanced” in order to promote competition. Analysts have estimated this could equate to an extra 200-400 branches.
“The Lloyds Banking Group divestiture would be unlikely to give rise to a strong challenger, at least in its early years,” the Vickers Commission said in April, adding: “The commission therefore suggests that the government seek agreement with Lloyds to enhance the divestiture substantially.”
But a Treasury source has told City A.M. that despite ongoing communications between Lloyds and the government, the Treasury has made no attempt to do as Vickers suggested and intervene in the sale process.
“It’s not unreasonable for Lloyds to continue with the sale process,” the source said, adding: “I wouldn’t jump to any conclusion about what the ICB is going to recommend. As important as how the branches are sold is who they’re sold to.”
The source also suggested that Vickers’ aims could be met in other ways: “Either you increase the number of branches for sale or you sell them to someone who has some branches.”
But the ICB has made clear that it is concerned not just about bidders’ ability to use the branches to compete but also about Lloyds’ size and the scale of the current disposal, saying “the planned divestiture is insufficient”.
The Treasury’s stance casts doubt on its commitment to follow through on the Vickers recommendations, which will have no statutory power and need government backing to become law.
Failing to implement them could cause friction between the Tory and Liberal Democrat sides of the coalition, which both agreed to avoid a fight on bank reform by giving Vickers responsibility for policy development.
But once Lloyds sends out its information memorandum for the sale, it will become difficult to add branches to the roster because bidders will begin due diligence on the assets. A source close to one potential bidder said yesterday: “If the goalposts are moved, it would require a reassessment by our advisers and it would add costs to the whole process because advisers don’t work for free.”
In addition, it could also require renegotiation of the original agreement Lloyds struck with the European Commission (EC), under which the EC has vetted every branch included in the sale on factors like location and footfall to ensure that it offers any bidder a solid base from which to compete with the UK’s established banks.
It is understood that the Treasury was also involved in overseeing the EC deal, which was crucial in allowing the UK to waive competition law so that Lloyds could buy HBOS during the financial crisis.
Lloyds and the ICB both declined to comment.