Lloyds’ escape plan put to the test
By Sharlene Goff and Patrick Jenkins
Published: October 17 2009 03:00 | Last updated: October 17 2009 03:00
The government and financial regulators will this weekend hold talks over the planned refinancing of Lloyds Banking Group to finalise their views on whether the bank can succeed in its ambitious bid to escape the asset protection scheme.
Both the Financial Services Authority and the government have signalled that they are concerned about the “achievability” of Lloyds’ plan to raise up to £25bn of capital through the combination of a rights issue, debt for equity swap and structured asset sale. The government owns a 43.5 per cent stake in the bank.
Lloyds, which signed up to the asset protection scheme in March, has in recent weeks become hopeful that it can find an alternative solution. It is keen to avoid the £15.7bn fee that it would have to pay under the scheme.
Even if the bank does manage to escape the scheme it would still have to make significant asset disposals as part of the state aid ruling that is being finalised in Brussels.
The European Commission wants Lloyds to dispose of a significant chunk of its assets and market share as compensation for the extensive government support it has received and to stimulate competition in the market.
Its priority is to see a dramatic reduction in the number of current accounts managed by Lloyds.
The bank, which took over HBOS at the height of the financial crisis, provides almost a third of all current accounts in the UK. The commission wants to see Lloyds’ share of the market reduced by about 8 percentage points, according to people familiar with the situation.
In order to shrink its market share by this amount Lloyds may have to sacrifice one of its leading high-street brands, such as Bank of Scotland in England and Wales or Lloyds TSB in Scotland.
One person close to the talks said the divestment would need to include a standalone brand that consumers can identify with as well as a network of branches. It is unlikely that Lloyds will have to dispose of all of its Halifax branches.
“Halifax is probably a bridge too far,” they said.
The branch sales are likely to be concentrated in Scotland but will cover the whole of the UK. Branches could be sold along with customers who have savings or loans based with them. These customers could be given incentives to stay with the new provider.
Lloyds would not comment yesterday.
Estate agency chain sold for £1
Lloyds Banking Group has agreed to sell its lossmaking Halifax Estate Agencies arm to LSL Property Services for £1.
The disposal will lead to the closure of 121 Halifax banking counters that are located inside the estate agency chain’s branches, with up to 460 people losing their jobs.
HEA is the UK’s fourth-biggest network of estate agencies with 218 branches. The group has been badly hit by the downturn in the property market, which pushed it into a pre-tax loss of £2m last year compared with a £34m profit in 2007.
The purchase will make LSL the second-biggest network of estate agencies in the UK by number of outlets. The company, which already owns the Your Move, Reeds Rains and InterCounty brands, expects to strip about £40m of costs out of the business and return it to profitability within two years, assuming a modest market recovery.
Shares in LSL rose 23p to close at 285p. It also said trading had beaten expectations since July, although turnover for the eight months to August 31 was down by 18 per cent.
Lloyds acquired the estate agency business when it bought HBOS in a rescue deal completed earlier this year.
