21 May 2009

FT: UK braced for call to shrink Lloyds

Alistair Darling is braced for an order by the European Commission seeking the shrinking of Lloyds Banking Group as a condition for the granting of state aid. Brussels could insist that the bank shrink its balance sheet.

Alistair Darling, chancellor, is braced for an order by the European Commission seeking the shrinking of Lloyds Banking Group as a condition for the granting of state aid. Treasury officials believe Brussels could insist that the bank shrink its balance sheet – possibly through asset disposals – or accept restrictions over its behaviour in the market.

 

Lloyds admitted the possibility that the commission could impose restrictions in a prospectus issued on Wednesday as part of its £4bn ($6.3bn) placing and open offer. These could include selling non-core or even core assets.

 

Talks between officials at the Treasury and Brussels have been under way for some weeks.

 

The warning underscores the uncertainties facing banks, including Lloyds and Royal Bank of Scotland, that have taken state aid. Under European Union rules, companies that are bailed out with government money are generally required to restructure to offset the competitive advantages stemming from the assistance.

 

Neelie Kroes, the EU competition commissioner, this month approved restructuring plans at WestLB and Commerzbank, which have received state support. These banks plan to cut their asset bases by 50 per cent and 47 per cent respectively over the next few years. RBS has laid out plans to reduce its balance sheet by moving some businesses into a unit that will be wound down or sold.

 

It also emerged that Lord Leitch will not be a candidate to take over as chairman of Lloyds when Sir Victor Blank steps down. Lord Leitch, who was elevated to deputy chairman after Sir Victor was ousted this week, has signalled that other commitments such as his chairmanship of Bupa would not allow him to take the job.

 

By George Parker and Peter Thal Larsen in London and Nikki Tait in Brussels

 

Copyright The Financial Times Limited 2009

 

© Financial Times