Livid Lloyds bosses defiant over banking report

Published on Monday 11 April 2011 19:14

THE Lloyds Banking Group has strongly criticised a major report into the future of banking in the UK, warning that its recommendations "go too far" and ultimately could delay another competitor in the market.

The long-awaited interim report by the Independent Commission on Banking severely criticised the merger of Lloyds and Halifax Bank of Scotland (HBOS), and warned it would need to sell off even more of its high-street branches, arguing that it had too big a market share.

The commission under the chairmanship of former member of the Bank of England's Monetary Policy Committee, Sir John Vickers, was set up by the coalition government to provide an independent view on how to end the "casino" banking culture which brought about the financial crisis in 2008.

The banking meltdown in that year left Britain with one of the most highly concentrated retail banking markets in the world, with the top five groups accounting for 85 per cent of UK personal current accounts and 70 per cent of savings accounts.

Sir John claimed the reforms would be "far-reaching"

and "transformative".

However, critics accused the report of being too timid, an accusation Sir John flatly denied. "I absolutely reject any notion that we bottled it," he said. "In no sense at all are these half measures . . . these are absolutely far-reaching reforms."

Its top recommendation was to "ring-fence" retail banking and protect it from the casino side of the markets. The report also said major banks should keep 10 per cent of their capital set aside to cover potential losses.

Coverage in full

• Livid Lloyds bosses defiant over banking report

• Changes at a glance

• Mark Littlewood: Sir John Vickers has asked the right questions, but few answers

• Shares bounce on banks report

• Martin Flanagan: ICB report is no damp squib, but is short of being a firecracker

• Gordon Brown confesses he made mistake over financial regulation

But Sir John said no guarantees could ever be made that the taxpayer would not be called upon to bail out the banks again.

He poured cold water on threats by UK banks that they would leave the country if they did not like new regulations, .

"Anybody contemplating a move of that kind, they would need to pay very careful attention," he said.

In the light of the report Barclays' shares closed up 2.8 per cent, or 8.2p, at 305.35p, making it the FTSE 100's top riser, while RBS rose 2.3 per cent, or 1p, to 44.43p. Lloyds went up by a more modest 0.2p to 62.36p, while HSBC dipped 4.7p to 660p.

Lloyds executives were understood to be privately livid and felt "unfairly singled out".

The report noted that it "regretted" the forced takeover of HBOS and Lloyds because it meant that the new bank dominated the retail sector with more than a third of all branches.

The Scotsman ran a campaign questioning the forced merger and the suspension of competition rules at the time.

The report said it was too late to separate the two, but added the divestment of 600 branches – known as Project Verde – forced upon Lloyds by European Commission rules, was not enough because it still gave the bank a 24.5 per cent share of the retail market.

Sources at Lloyds asked why the commission had failed to discuss the issue of branches when it held "convivial talks" with the bank ahead of writing the interim report.

And there were suggestions of "double standards" because RBS which has 24 per cent of the loans market for small and medium-sized businesses escaped any further divestment even though it is 80 per cent-owned by the taxpayer, compared to Lloyds' 43 per cent.

Lloyds chief executive Antnio Horta-Osrio said: "We are surprised that the interim report is proposing a potential expansion of Project Verde which we believe is not in the interest of our customers. This option may paradoxically potentially delay a new competitor coming into the UK market."

Trade unions were critical of the report for being too weak.

GMB general secretary Paul Kenny said: "The elephant in the room, the bonuses and the greed which were the root cause of all the trouble and which lead to the bankers' recession, has been completely ignored."

And it received a lukewarm response from analysts.

Paul Mumford, senior investment director at Cavendish Asset Management, said: "The banks will be breathing a sigh of relief."

Keith Bowman, banking analyst with Hargreaves Lansdown Stockbrokers, added: "In all, taking the perspective of the average consumer, the interim report would appear to be somewhat disappointing."

Tory Chancellor George Osborne said: "I recommend everyone to read it. The decision we took to set up the commission has been vindicated."