The Winners from the ICB Review

by Mark Johnston

Which banks and lenders came out of the Independent Commission of Banking’s preliminary review best, which came out worse and what is the impact on your bank. Barclays and RBS were the stand out winners and the unfortunate Lloyds Banking Group; the biggest looser. 

With the preliminary review from the Independent Commission on Banking out now, the fact that there will not be a regulation requiring the break up of the so called universal bank.  This saw the share price for Barclays and RBS rise by 3 per cent.  Lloyds saw it’s shares rise also as the ICB felt that the merger between the Lloyds Group and HBOS should not be reversed despite concerns raised on the competition rules.

We reported recently that Lloyds were set to sell 600 branches and private discussions have revealed that the sale is due to generate somewhere in the region of between £2 billion and £3 billion on the market and accounts for about 5 per cent of the U.K’s checking account market.  The sale must go ahead, according to the stipulation of their bailout, by the end of 2013 in order to comply with the terms and conditions.   Lloyds may be ordered to sell further branches further impacting the livelihood of this group.

The government will review the ICB report and produce their own recommendation later this year in September but for the moment, the collective banking and lending companies are breathing a huge sigh of relief.  Any further turmoil in this industry may tip the fragile recovery experienced so far.  A cancellation that the banks will have to put up with will be the greater capital they will be required to hold in reserves now, at least 10 per cent.  Banks and lenders will have to follow international guidelines and their capital safeguards will be available to transfer over all their banking units. 

One of the recent events saw the rumours that HSBC Bank plc would remove and relocate their head quarters from the UK to Hong Kong.  The report out recently has gone some way to keep HSBC, Barclays and RBS internationally competitive and not gone too far to push them out of the UK.  This would truly be tragic for the UK economy and wider recovery.

Whether the review has gone far enough to convince tax payers who bailed out some of these banks, is yet to be proved.  Initial thoughts in the market indicate that as long as the banks and lenders continue to act appropriately, maintain considerable capital reserves and where a bank was bailed out, that they return all funds to the coffers as soon as possible.  If these steps are met, taxpayers will be somewhat appeased.

The ICB report tried to address the danger of the “too big to allow to fail” that surrounded not just banks in the UK but banks across the globe.  The balancing they tried to strike was one of not being too strict versus ensuring stability and contingency for the unexpected.

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