Saturday profile: Europe's steely lady who has fate of British superbanks firmly in her grip

Published on Friday 7 August 2009 21:41

SHE has been dubbed "Steelie", or "Nickel Neelie", even – "the Margaret Thatcher of antitrust".

All her nicknames give the impression that Neelie Kroes is not for turning, which is a worry for both Lloyds Banking Group and the Royal Bank of Scotland.

Europe's competition commissioner has both in her sights and she made her intentions clear the last time she was in the UK: with both banks being in receipt of state aid, their respective domination of UK markets – Lloyds in retail banking and RBS in corporate – would have to be addressed.

Nor should they expect a soft touch. The former academic and Dutch politician took the biggest scalp in the Competition Commission's history in the first year she took the job when she fined Microsoft nearly 500 million (425m) in an anti-trust suit. Although much of the groundwork was laid by her predecessor, Mario Monti, it was Kroes who decided that Microsoft chief executive Steve Ballmer's promises to deliver certain documentation on its platforms were not met. In her five years as commissioner, she has levied more than 10 billion in fines.

Initially Kroes, who sat on several corporate boards and rose through the ranks of the Dutch pro-business Volkspartij voor Vrijheid en Democratie (VVD) party, was viewed with suspicion by her colleagues in Brussels as being a corporate stooge. This has faded.

But the issues with the UK banks – including Northern Rock, Lloyds and RBS are more complex than just mere market dominance and fall into the more complex arena of state aid.

Yesterday RBS chief executive Stephen Hester admitted he did not have the foggiest idea what the European Union would force it to do. "We are in the process of exploring what the EU wants. They have only just begun to engage with us on the subject in the last handful of weeks. We are just in the process of information exchange into how our business works and what is the art of the do-able and sensible.

"I am afraid Commissioner Kroes said publicly in her speech here that part of the things she was looking at as it relates to Lloyds was their retail market share and as it relates to us, was our SME market shares."

Despite catching stick about a perceived lack of lending to businesses, RBS is still the UK's market leader in SME banking – Hester estimates 20-30 per cent of the market, leading Barclays. "I don't know by what amount it will have to come down," says Hester.

Apparently, Kroes' negotiations with Lloyds are even more fraught. The merged "superbank" is the leader in most UK retail bank markets including savings, personal loans, credit cards and mortgages.

Speculation has suggested Kroes will make Lloyds sell off some of its jewels – maybe Scottish Widows, maybe Clerical Medical. Reports have emerged that Daniels' initial proposals sent to the Competition Commission for reshaping the business have been rejected for not going far enough.

Already Lloyds has announced the shutdown of its Cheltenham & Gloucester branches, while plans to take a long scythe to bank branches across the UK is so commonly expected that it barely raises an eye brow.

Angela Knight, the chief executive of the British Bankers Association, is keeping her fingers crossed that Kroes will allow a five-year time span for any required sell-offs.

"The leaks are saying Kroes is giving five years and that is not too bad," says Knight. "They need time. The improvement in the economy will give the banks the opportunity to restructure in all the positive ways one wishes."

But she warns: "Life is still difficult. It is just not going to be an easy period of time."

But most point to Kroes' treatment of Germany's WestLB and Commerzbank, which in May announced plans to cut their asset bases by 50 per cent. Will Lloyds have to halve its balance sheet? Dispose of the Bank of Scotland?

The picture is also complicated by EU negotiations with the Treasury over the government's Asset Protection Scheme (APS), which both banks are looking to take advantage of – Lloyds will put 260bn worth of its assets into the scheme while RBS has earmarked 316bn.

It means the government will take a hit if the value of the assets fall even further – albeit it is far from a "get out of debtors' prison free" card as both RBS and Lloyds will pay handsomely to join – at least 6.5bn for RBS, and that is before other charges.

But negotiations between the banks and the Treasury have dragged on – since the scheme was announced in October it still hasn't been signed off. Hester said yesterday there was "nothing sinister" in the delay and pointed to the fact the Treasury required more than one billion pieces of information from the bank and that part of the job was getting the IT sorted.

But the rest was down to delays with Kroes' commission, whose approval of the APS as state aid is still, Hester admitted, uncertain.

And while all remains unclear, Colin Miller, a competition law expert with the law firm Biggart Baillie said Kroes will have her way. "Put it this way, if the banks are desperate for the money to survive they will have to comply with the commission. The commission has the upper hand in what they can and cannot do. Otherwise they just won't get the approval."

Although Kroes tends to deal – and by all reports quite forcefully – with companies, it is unusual that her commission would deal directly with companies regarding state aid.

These, understandably are handled by the state. But in the UK, the unholy trinity of the banks – part-owned by the state – and the Treasury and the asset protection scheme make a knot that is difficult to unravel.

"That has got to make it more complicated. The more parties you have got in this kind of thing the more complicated it gets," says one competition expert.

"It may well be this multiplicity of different players is making it a bit more tricky and a lot more painful."

Insiders at Lloyds think getting the same treatment as the German banks is both "unlikely" and "unfeasible". But rumours are now swirling around that chief executive Eric Daniels may shun the APS and go it alone.

Meanwhile, the Treasury hopes the punitive measures associated with the APS will make Kroes release her strong grip.

CAREER PATH

&#149 Neelie Kroes, 67, the eldest of three children, was born in the Dutch port of Rotterdam in 1941, the year after it was blitzed by the Luftwaffe.

Her father was an industrialist who in Europe's postwar boom, set up transport company Zwatra.

&#149 In 1965, Kroes studied economics at Rotterdam's Erasmus University and acted as an assistant professor of transport economics.

&#149 In 1971, she joined Dutch political party VVD, first as a councillor, eventually working up to the Dutch parliament, to ministerial jobs and finally transport minister until she left government in 1989.

A portfolio career followed, including being president of Nyenrode Business Universiteit. She was on the boards of companies such as Volvo, the Dutch McDonald's, Lucent Technologies and PricewaterhouseCoopers

&#149 In 2004, she became Dutch commissioner. She is expected to retire next year.