Lloyds plans internet bank expansion to foil sale order

LLOYDS Banking Group is planning to aggressively build up deposits at its internet bank, Intelligent Finance (IF), in an attempt to avoid the forced sale of further branches, it has emerged.

The bank is understood to have approached the Independent Commission on Banking (ICB) with a last-ditch deal to dissuade its members from recommending that even more branches are off-loaded beyond the 600-plus required under European competition law.

Sources suggest that by adding a further £5 billion to accounts at IF, which has also been put up for sale as part of “project verde” – the bank’s codename for the branch sell-off – Lloyds could persuade the ICB and the UK government that it is making a sufficient sacrifice. It has also been suggested that a beefed-up IF would make the business more attractive for buyers as it would go a long way towards plugging the funding gap, which is thought to have put off some potential bidders.

Lloyds has already committed to selling IF along with 632 branches and about 19 per cent of its mortgage business as part of a huge disposal insisted upon by the European Commission as a condition of the lender’s taxpayer bail-out following the takeover of HBOS.

But the ICB – which will publish its final recommendations in less than a fortnight – is still considering increasing the size of the forced sell-off as it seeks to bring more competition to the UK banking market.

Lloyds chief executive Antonio Horta-Osorio has made clear his vehement opposition to an enhanced sale, which was one of the recommendations of the ICB’s interim report, published in April.

The package to be off-loaded represents 20 per cent of Lloyds’ branch network and mortgage business, and will create the seventh-biggest bank in Britain.

But the funding gap between mortgages and deposits means the buyer will have to hold considerable funds, which is understood to have concerned a number of potential bidders. The bank last night refused to comment on its plans. It also declined to say how much is currently held in deposits with IF.

If it decides to go ahead, Lloyds would have to aggressively market its online offering in order to gain £5bn of business before a deal over project verde is closed.

It had been thought Horta-Osorio was keen for actual contracts to be signed by the end of this year, although the deadline from Brussels is November 2013.

News of the Lloyds manoeuvre came after CBI director- general John Cridland hit out at plans for banking reform, saying the UK government would be “barking mad” to implement proposals from the ICB at a time of such economic weakness.

He said unilateral changes to regulation could threaten the fragile recovery. “Taking action at this moment of growth peril – which weakens the ability of banks in Britain to provide the finance that businesses need to grow – is just barking mad,” Cridland said.

He suggested the fast pace of reform was being set for political reasons and that Britain would score an “own goal” if it forced companies to shift away from a focus on the UK by setting new rules unilaterally.

His comments came after Angela Knight, the chief executive of the British Bankers’ Association, said plans to reform the sector should be put on hold until the economy has recovered and taxpayers have been repaid for the bail-outs.

Despite the speculation around the ICB, banking shares yesterday led a post-bank holiday rally on the London stock market.