Tomorrow will clarify this matter but there is no doubt that both RBS and Lloyds will be much slimmed down.
And always remember that until Brown cajoled and sweet talked Lloyds chairman into taking over the wreck that was HBOS, Lloyds-TSB was a soundly based bank. That’s one wreck that is entirely Brown’s fault.
Christina
GUARDIAN
22.7.09
State funded banks face asset sales under new EU rules
• Analyst expects Lloyds Bank to write off £50bn
• RBS has begun to pull back from its operations in Asia
Banks which have been bailed out by European governments will be forced to shrink their businesses and sell off certain assets under new guidance to be issued by the EU on Thursday.
Amid warnings by EU Competition Commissioner, Neelie Kroes, that Royal Bank of Scotland and Lloyds Banking Group may need to be broken up, analysts are forecasting that they may also need shrink their branch networks to comply with European rules on fair competition.
Analysts are also looking forward to the interim reporting season next month when rising unemployment is expected to cause a further increase in arrears and bad debt charges.
Sandy Chen, banks analyst at Panmure Gordon, is estimating that Lloyds Banking Group could write off almost £50bn in the next two years because of loans which have turned sour, largely as a result of the takeover of HBOS.
Chen, who is regarded as the most pessimistic of the banking analysts, is forecasting that Lloyds will make provisions of £24bn this year and £23.5bn in 2010. He also expects Lloyds and RBS to sell off core and non-core assets to appease EU rules. He suggested Lloyds might close 20% of its 3,000 or so branches, following the decision to axe all 164 Cheltenham & Gloucester branches.
The bank's stake in St James' Place and insurers Clerical Medical as well as fund manager, Insight, might also be on the block. RBS has started to scale back in Asia and there are expectations that it might need to pull back from operations in continental Europe.
The EU is not expected to give specific guidance on each of the 70 banks in Europe which have received taxpayer handouts, but will set out broad guidelines about how they should be treated.
The EU is expected to acknowledge the extent of the financial crisis by giving banks up to five years to complete any restructuring that allows them to survive without state support, rather than the usual two to three years.
Lloyds has already warned the City that the EU might demand disposals in return for the injection of government funds and its participation in the asset protection scheme, which is insuring £585bn of troublesome loans at both Lloyds and RBS. Lloyds figures in the first half will be flattered by accounting gains from the HBOS takeover and gains from a reshuffling of its debt. But accounting quirks could force HSBC to record a loss in the first half because of a $4.7bn (£2.8bn) hit from its record-breaking £13.5bn rights issue.
Panmure Gordon, which is an advisor to the government on Northern Rock, thinks UK Financial Investments, which looks after the taxpayer's stakes in the bailed out banks, might have a short window to sell some of their stakes next month before being locked in for many years. UKFI has refused to be specific about when it might sell its stakes in the banks but admitted it could take place in tranches over several years.
Chen's analysis includes a gloomy outlook for the UK economy and particularly unemployment where he notes all sectors are suffering layoffs making it difficult for redundant workers to find other jobs. He also notes that people on the lowest household incomes are suffering most during the recession while those on higher incomes are benefiting more from the low interest rate environment. Chen thinks GDP growth will be muted until household income starts to rise again. [That could be a very long way off! -cs]
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