Lloyds faces possible forced sale of core Scottish assets

Published on Wednesday 20 May 2009 21:45

LLOYDS Banking Group has admitted it may be forced to sell off core parts of its business as the price for taking part in the government's multi-billion pound bank support schemes.

The group warned shareholders yesterday that the European Commission could compel it to "divest or exit core businesses" as a condition of granting state aid approval. Analysts last night predicted Bank of Scotland and Scottish Widows could be sold if Lloyds is forced to break up the super-bank created from its takeover of HBOS.

Under competition rules, the bank has to get approval from Brussels for the 17 billion government recapitalisation and the placing of 260bn of toxic debts into the taxpayer-backed Asset Protection Scheme.

Both schemes are classified as "state aid", or subsidies, to an industry which could have anti-competitive implications.

Lloyds admission came in a circular to shareholders explaining its latest 4bn cash call. The bank plans to use the money raised to buy back the expensive preference shares held by the government.

The prospectus, published yesterday, said: "The terms of such a forward plan are likely in particular to include the obligation to reduce significantly the size of the group's balance sheet and/or behavioural restrictions.

"The group expects such reduction in the balance sheet to be achieved through making divestments of or exiting non-core businesses. However, a reduction could require the group to divest or exit core businesses."

It added that this could be "materially adverse" to the bank's interests.

Analysts and brokers last night said the bank's Scottish assets were among those that could be put up for sale.

Julian Chillingworth, chief investment officer of asset managers Rathbone Brothers, said: "The most likely sale of assets are the ones north of the Border, which is Scottish Widows."

Lloyds; wealth management business, St James Place, also has "most interest", he said.

Bryan Johnson, of brokers Brewin Dolphin, said the group would have to sell Bank of Scotland as the bank's consolidation of the retail banking market becomes apparent to competitors.

However, Alex Potter at Collins Stewart said assessing the risk of asset sales or picking likely candidates for disposal would be "second guessing European politicians" and was "completely up in the air".

Recently Martin Gilbert, the chief executive of Aberdeen Asset Management, dropped hints that his company could be buying Insight, the fund management business acquired as part of HBOS.

While Lloyds has been forced to raise the possibility of asset sales in its share prospectus, some analyst believe that Royal Bank of Scotland, which also took part in the government support schemes, was likely to be investigated in the same way.

It is thought that if the EU does order asset sales at Lloyds or any other UK bank which has received assistance, that a decision is unlikely this year, and that the bank could then be given up to five years to dispose of the assets.