Could Lloyds be forced to give up Halifax?

The EC is apparently considering forcing Lloyds to sell off Halifax - which would be a real hammer blow...

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Last Updated: 31 Aug 2010

Lloyds Banking Group has been told by the European Commission that it may have to sell off Halifax as punishment for all the state aid it has received, according to a report in today’s Times. If this is true, it would be a bit of a disaster for Lloyds – given all the hassle it’s had as a result of the HBOS deal, not to mention the billion-pound losses at its Bank of Scotland arm, being forced to give up the only part of the bank it actually wanted would be very bad indeed…

According to the Times, Competition Commissioner Neelie Kroes, who’s currently running her beady eye over the deal, is deciding how badly Lloyds should be spanked over the HBOS deal – and the theory is that it could be forced to give up (at least some of) its 1,000 Halifax branches, to make sure it doesn’t have too big a share of the UK retail banking market. But as far as Lloyds was concerned, that was the whole point of the deal: it persuaded the Government to ride rough-shod over competition rules, and pushed the merger through despite the gaping holes in the BoS loan book, all because it saw a great strategic opportunity to own almost a third of the market.

Given how much is at stake, Lloyds is unlikely to take this lying down. Apparently it’s arguing that it doesn’t plan to make much use of the Treasury’s insurance scheme for toxic assets, so it won’t actually be taking much state aid – other than the huge injection of taxpayer cash it’s already had to plug the BoS-shaped hole in its balance sheet, of course. And it may also be trying to spin the process out until Kroes’s term ends next month – after which it might face a more forgiving foe (and presumably the investigation will have to start again, at huge cost to the rest of us). Since this is the EU we’re talking about, the smart money is probably still on some kind of compromise deal, where Lloyds would get to keep the Halifax brand if it sells off some of the branches (if it was down to us, we'd make the compulsory retirement of Howard part of the deal too).

It’s hard to know how the Government will feel about this. On the one hand, Gordon Brown has always been keen to take the credit for making the deal happen, so it would be a bit embarrassing if the Commission decides to unwrap the whole thing. On the other hand, it removes another embarrassment, i.e. that the Government not only turned a blind eye to, but actively encouraged a reduction of competition in the banking sector. If a willing buyer can be found – and Tesco is the name being touted, not least because its finance boss Benny Higgins actually used to run Halifax – this might actually be a neat solution. Unless you’re Lloyds, that is.


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