Lloyds looks for hole in ringfencing

The bank is trying to persuade its regulator to go softer on it over the split-up of its retail and investment banking arms. Meanwhile, the Co-op wants our opinions on what to do next.

by Rachel Savage
Last Updated: 26 Mar 2014

Banks and regulators look a bit like Harry Potter and Voldemort sometimes (neither can live while the other survives). The latest salvo in their never-ending tug of war comes from Lloyds Banking Group, which is pushing for a softer deal from its regulator over new ring-fencing rules because it's worried it may have to shut up its investment shop.
 
Lloyds, which is a third owned by the taxpayer, is trying to persuade the Prudential Regulation Authority to give it some leeway on the upcoming separation between retail and investment banking, according to the FT.
 
The cost of the split, which will come into effect by 2019 as part of the Banking Reform Act being passed in December, could mean Lloyds ditches its investment arm altogether, sources told the FT. (That would be no bad thing, some would say - but that's another argument for another day.)
 
Investment banking accounts for less than 10% of the bank’s profits, a much lower proportion than rivals such as RBS and Barclays. To be fair, those two are both in the process of heavily scaling back their investment banking activities - but Lloyds' problem is that if it divided, it probably wouldn't make enough to cover the expenses of separate boards and HR, risk, accounting and IT functions for the two new banks.
 
Whether the PRA will budge or not is a big question: the split was recommended by Sir John Vickers’ Independent Banking Commission as a way to make sure the riskier investment banking doesn’t harm its nicer, quieter retail cousin, a la the financial crisis.
 
‘Given that we are predominantly a retail and commercial bank, we would expect to be less affected than other major UK banks by the implementation of a retail ringfence,’ a Lloyds spokesperson said. ‘We remain committed to providing our clients with a broad range of banking services.’
 
While Lloyds is setting about trying to persuade the regulator it means well, the Co-operative Group is trying to persuade the people. The Co-op is canvassing opinions in an online survey, after a torrid 2013 during which the Co-op Bank’s former chairman, Reverend Paul ‘Crystal Methodist’ Flowers, was arrested on drugs offences and a £1.5bn hole was uncovered in its balance sheet.
 
‘It was perhaps the worst year in our 150-year overall history,’ the group’s chief exec Euan Sutherland told the BBC. MT thinks he’s probably not far wrong on that one.
 
Sutherland will have to brace himself for some pretty brutal replies to the survey, even though people are asked whether they agree with suspiciously leading statements such as, ‘It has higher ethical and moral standards than its competitors’ and ‘It’s a business that tries to do the right thing.’ Better hope no more Co-operators get caught out trying to do drugs then…

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