“This is an enormously competitive market and I’m not sure dividing banks up further will give any better outcome,” Daniels told a Treasury Committee hearing at the House of Commons in London today. “We’re already divesting a number of branches and current-account share.”
The government-sponsored Independent Commission on Banking is examining whether to recommend the breakup of British banks to improve competition and financial stability. The commission, led by John Vickers, an Oxford academic and former Bank of England economist, reports in September. Lloyds may be recommended for breakup by the five-member panel, committee member Clare Spottiswoode said on Nov. 20.
“Size is a red herring,” Hester told the committee later on. “One has to look elsewhere than size to answer the questions. In some business areas size that can give economies of scale that mean you can be more successful in your offering to shareholders and customers.”
Vickers said in June that it was a “mistake” for the government to have waived competition laws in 2008 allowing Lloyds, the U.K.’s biggest mortgage lender, to acquire HBOS Plc.
It would be “premature” to prejudge the outcome of the banking commission, Daniels told parliamentarians.
Daniels, 59, led Lloyds’ takeover of HBOS, a purchase that forced the lender to seek a 17 billion-pound ($22.7 billion) rescue that left the government with a 41 percent stake in the bank.
Lloyds must wean itself off 132 billion pounds of central bank and government funding which it required after taking over HBOS. To do so, the bank must reduce its balance sheet by about 200 billion pounds by 2014, by shrinking its mortgage book and selling assets, according to its annual report.
Lloyds has to sell 600 branches by 2013 to comply with European Union rules on state aid.
Hester is part way through a plan to shrink RBS, 83 percent government-owned, by selling assets and cutting jobs, a process he described in May as the most complicated restructuring of any company in history. RBS received the biggest taxpayer-funded bailout in the world in 2008.
Hester said he would welcome the government selling its stake. A sale “would be a symbol of Britain’s recovery and help with that, and a symbol of RBS’s recovery,” he told parliamentarians.
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