Lloyds Breakup May Harm Government Credibility, Lawmakers Say

U.K. government credibility would be damaged if the Independent Commission on Banking forced Lloyds Banking Group Plc (LLOY) to unwind its merger with HBOS Plc, a panel of lawmakers said.

Such a move would risk politicising competition policy, create uncertainty for business and create incentives for political lobbying, Parliament’s Treasury Committee said in a report published in London today.

“Government credibility would be undermined if a merger arrangement approved by one administration was unpicked by another,” the report said. “However, we do not believe that the need to respect the merger should inhibit the ICB from proposing radical changes to the market as a whole.”

ICB Chairman John Vickers, 52, will present an interim report on ways to increase financial stability and competition in the U.K. banking market on April 11 and final conclusions in September. Commission member Clare Spottiswoode said in November that the five-member panel may suggest a breakup of Lloyds.

Lloyds Banking Group required a bailout of more than 20 billion pounds ($32 billion) from the government, which took a 41 percent stake in the lender. Lloyds has to sell 600 branches by 2013 to comply with European Union rules on state aid.

As a whole, the U.K. consumer banking market is “highly” concentrated, uncompetitive and opaque, the Treasury Committee said. The government should make it easier for competitors to enter the market and banks should make it simpler to switch between lenders, the report said.

“The British Bankers’ Association supports competition in the banking industry as it is the best driver of innovation and cost efficiency and delivers real benefits for customers,” the industry lobby group said in a statement today.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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