U.K. Hung Parliament Would Mean `Bad News' Outcome for Banks, Gieve Says

A U.K. election result giving the Liberal Democrats the balance of power next week could mean “bad news for banks,” former Bank of England Deputy Governor John Gieve said.

“It’s bad news for banks if you have Liberal Democrat influence,” Gieve, a senior advisor to GLG Partners Inc., told reporters at an event organized by GLG in London today. “The Liberal Democrats have been forceful on separating banking and trading; Tories could be pushed in that direction.”

Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc should remain in British government ownership for 10 years, Liberal Democrat Treasury spokesman Vince Cable said today. Lloyds, 41 percent owned by the government, reported a profit today for the first time since 2008 as bad loans declined.

Cable’s party may the key to who governs Britain after the May 6 election, which opinion polls suggest will give neither the ruling Labour Party nor the main opposition Conservatives a majority in the House of Commons. That might mean the Liberal Democrats demanding acceptance of some of their policies in return for providing support in Parliament.

Gieve, whose career includes 20 years at the U.K. Treasury and three years at the Bank of England, said the prospect of Liberal Democrat involvement in the next government raises the prospect for higher taxes on banks.

“Taxes on banks seem a dead certainty,” said Gieve, who was hired by GLG in December. “If you’re going to have a tax, why not a big tax? Why not 4 or 5 billion pounds?”

Gieve, 60, oversaw financial stability during the Northern Rock Plc panic and the collapse of investment bank Lehman Brothers Holdings Inc. in 2008, and helped implement new regulations that gave the Bank of England more power to oversee lenders. He left the central bank in March 2009 and signed on as senior adviser to London-based hedge fund and mutual fund manager GLG in December.

To contact the reporters on this story: Tom Cahill in London at tcahill@bloomberg.net Jennifer Ryan in London at jryan13@bloomberg.net

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