Susan Rice rejects talk of HBOS demerger

Published on Wednesday 8 December 2010 14:25

SUGGESTIONS that the controversial "shotgun wedding" of Lloyds TSB and Bank of Scotland could be unscrambled are dismissed today by Susan Rice, managing director of Lloyds Banking Group in Scotland, in an exclusive interview in Scotland on Sunday.

• Susan Rice: 'It's hard to see how HBOS can be taken back'

"The group is two-thirds of the way along its integration," Rice said. "It is the biggest corporate integration of two companies in Europe, so it's quite a massive undertaking. We're ahead of schedule.

"It's very hard to see how it (HBOS] can be taken back. We've made the scale of change we needed to make. It's full steam ahead. Much of what remains is technical work.

"If we had bought an investment bank then we could be able to do it (demerge]. But we have no intention of reopening a merchant bank."

While Lloyds is committed to shedding some 600 branches, Sir John Vickers, chairman of the Independent Commission on Banking (ICB), recently said the merger was a "mistake". Clare Spottiswoode, another member of the Commission, suggested it may look at unstitching the merger.

The Commission has been studying competition in the sector and is due to report next year. Last week one member of the Commons Treasury Select Committee criticised Lloyds' "monumental dominance" since the acquisition of HBOS in areas such as mortgages, where it has a 28 per cent market share, personal loans, where it has 25 per cent of the market, and small business lending, where Lloyds is in Britain's banking top three at about 20 per cent.

But breaking up Britain's banks would fail to sharpen competition in an already "enormously competitive" sector, Eric Daniels, the chief executive of Lloyds Banking Group, told the committee. This month members of the Merger Action Group - a group of Scottish business figures who challenged the legality of the merger at the time - demanded that a hidden dossier produced at the time should now be published to show how the then business secretary, Peter Mandelson, arrived at his decision to waive competition policy rules and allow the merger through.

However Rice, in her interview today, points out the impracticalities of unscrambling the 2008 merger as there is no distinctive stand-alone business of HBOS such as an investment banking arm that could be easily detached. Both are high street retail banking businesses.

Last July Brussels formally approved the group's restructuring plans and the sale of 600 branches. The proposed divestments will create a new group with a market share of about 5 per cent in the retail banking market, and a solid footing in mortgage and SME markets. But sources close to the Treasury Select Committee have suggested the ICB could insist on further divestment, possibly resulting in the hiving off of TSB from Lloyds and creating a new entity that could be floated by way of an offer for sale of shares.