Lloyds Banking Group Plc (LLOY) should recognize it risks a protracted and costly competition investigation if it ignores pressure to sell more assets, according to a person with knowledge of the situation.
While the bank last week offered 632 branches for sale to comply with a European Union ruling on taxpayer aid, the British government-appointed Independent Commission on Banking in April recommended Lloyds should sell “substantially” more assets.
Should Lloyds decide not to comply, the ICB may recommend a U.K. Competition Commission review of the checking account market said the person, who declined to be identified because the matter is private. Competition Commission inquiries typically last for two years, according to Siobhan Allen, a spokeswoman.
That could block government plans to begin selling its holdings in the bank next year. The privatization of U.K. banks is not a matter for the ICB, commission member Martin Taylor told a House of Commons committee last month.
“Lloyds are going to fight this one to the line, but they will lose,” said Simon Maughan, head of sales and distribution at MF Global in London. “Lloyds doesn’t have a leg to stand on.”
Lloyds, 41 percent taxpayer-owned, won’t sell “even one branch more” than the 600 it agreed with the EU and previous Labour administration following its 20 billion pound ($32.7 billion) taxpayer-funded bailout, Chairman Win Bischoff said last month.
Chief Executive Officer Antonio Horta-Osorio may meet ICB Chairman John Vickers as early as next month for a more detailed discussion on asset sales before the commission’s final report, the person said. That’s due to be published on Sept. 12.
London-based Lloyds last week sent out a so-called information memorandum to potential bidders for more than 600 named branches, more than a fifth of its 2,900 outlets. The sales document contained a clause that said Lloyds could amend the structure or terms of the agreement prior to signing.
“Nothing should be read into it that would suggest we would need to increase the number of branches we need to put up for sale,” Charlotte Sjoberg, Lloyds spokeswoman said yesterday.
Lloyds became the U.K.’s biggest mortgage lender and provider of checking accounts as a result of its 2008 acquisition of HBOS Plc. The deal, brokered by the former Labour government, was cleared at the time by Business Secretary Peter Mandelson, who said it was in the public interest. Vickers last month called the outcome “regrettable.”
Lloyds shares have tumbled 23 percent since the ICB published its interim report on April 11. Lloyds was down 1.1 percent to 48 pence at 10:11 a.m. in London.
A significant increase in branch sales “could have the effect of unwinding the Lloyds TSB/HBOS merger,” the bank said in a submission to the House of Commons Treasury Committee last week.
The ICB said in its April interim report that a market investigation “would be in line with the commitment” made by the government in 2008 that competition authorities should continue to monitor the Lloyds-HBOS merger. The Competition Commission has the power to order the breakup of companies. In 2009, it told BAA Ltd., the owner of Heathrow airport, to sell terminals.
The Treasury said last week it wouldn’t pre-empt the final report of the commission by giving a commentary on any measures it might suggest. Officials at the ICB declined to comment on a possible competition inquiry, while a Lloyds spokesman said the bank was “engaging” with the ICB.
The bank may kill off brands if it’s forced to sell additional branches, Lloyds said in its House of Commons submission, describing such a requirement as “inappropriate” and “extreme.”
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