Lloyds Under the Knife

by Mark Johnston

Lloyds is being forced to sell 632 branches by the European Union in part as payment for the £20 billion it received in state aid.  State aid that helped keep it afloat during the crisis in 2007 and it’s faltering in 2008.

Lloyds Banking Group Plc, the biggest mortgage lender in Britain, will change the face of the banking network forever in the next few days if this sale goes ahead.  Lloyds have solicited the help of the investment giants Citygroup Incorporated and JP Morgan Chase & Co. to help find buyers for about 600 branches that Lloyds have to sell.

Lloyds were bailed out in 2008 with an injection of tax payers money to the tune of £37 billion which was quoted as being an “absolute humiliation” by a BBC boss at the time.  They are now 41 per cent owned by the current UK coalition Government.

There appear to be up to 10 parties interested in the purchasing some, if not all, of the branches and they have requested in-depth detail regarding the size and profitability of the branches.

The sale of the branches accounts for about 4.5 per cent of the current account market and should return the £20 billion the EU pumped into the group in October 2008.

The independent commission on banking has suggested that Lloyds sell more branches to increase competition in the banking sector but Antonio Horta-Osorio, the new Lloyds boss is going ahead with the sale of 632.

There is interest from Sir Richard Branson and his Virgin Money brand, there is also interest from NBNY and the Cooperative bank.  NBNY is a new bank that has been set up by Lord Levene and the former Northern Rock boss Gary Hoffman.  There is also some interest from the National Australia Bank, owner of Clydesdale and Yorkshire, however it’s believed that the most plausible offer will come from a joint presentation from NBNY and NAB.

The independent commission on banking will issue a final report in August on how to bolster competition and reduce risk in the banking sector.  While Horta-Osoria refused to comment on the sale, he has advised the Treasury that he hopes to receive indicative offers by July, a full month before the report is due.

The new Lloyds boss is set to present on 30 June his strategic review, estimated to save an additional £1 billion in cost savings, this is in addition to the £2 billion promised to be saved from the merger of HBOS and Lloyds.  There is a strong probability that further jobs will be lost in this process, including senior management roles, on top of the 27,500 roles already removed.  This strategic review should be more “evolution than revolution” and Horta-Osorio hinted that Lloyds would be focusing more on the UK high street brand and less on international ventures.  There should be a marked improvement in their mortgage and savings offers in the future.

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