Corporate giants have doubts over Scotland future

Antonio HortaOsorio, Lloyds chief executive, is based in London. Picture: Getty

Lloyds, which has 18,000 Scottish staff and includes the Bank of Scotland, said in its annual report that independence risks damaging its business by increasing the cost of financing the company.

Barclays said that the independence vote, as well as the expected UK-wide referendum on membership of the EU, introduced “potentially significant new uncertainties and instability in financial markets”.

Last night, Shell also entered the debate, warning of the economic risks of voting Yes. Ben van Beurden, chief executive of the Anglo-Dutch oil giant, said: “We’d like to see Scotland remain part of the United Kingdom. Given a choice, we want to know as accurately as possible what investment conditions will look like ten or 20 years from now.”

The remarks follow similar warnings last week by RBS and Standard Life. RBS said a split could damage its credit rating, whilst Standard Life went further, saying it was prepared to move business south of the Border in the event of Yes vote.

The latest warnings also came amid claims that Lloyds and RBS could be forced by European law to move their legal headquarters to England.

Lloyds’ caution was contained in a two-line extract of its 392-page annual report published yesterday. Under the heading “Emerging Risks”, Lloyds said: “The impact of a Yes vote in favour of Scottish independence is uncertain. The outcome could have a material impact on compliance costs, the tax position, and cost of funding for the group.”

The report was making the point that complying with a separate Scottish financial regulator could push up costs, as could a differing tax regime in an independent Scotland.

By referring to the “cost of funding” for the bank, the report highlighted its fears that if an independent Scotland ended up having a poorer credit rating than the rest of the UK, the cost of borrowing on the international markets would increase.

Discussing its “key mitigating actions”, the report added that the bank would monitor and assess the “potential impact” of a vote for independence on the group’s business and customers.

In the “Risk Review” section of its report, Barclays said: “The referenda on Scottish independence in September 2014 and on UK membership of the European Union (expected before 2017) may affect the group’s risk profile through introducing potentially significant new uncertainties and instability in financial markets, both ahead of the respective dates for these referenda and, depending on the outcomes, after the event.”

It also outlined a number of other risks, like concerns in the market about credit risk, including that of sovereign states, and the eurozone crisis.

The exit of one or more countries from the eurozone is also cited as a risk, as is a decline in residential prices in the UK, western Europe and South Africa.

The reports were published as the BBC reported that a 1995 European Commission directive could result in Lloyds and RBS moving their registered HQs from Edinburgh to England.

The directive says that a bank must have its head office “in the same member state as its registered office”.

According to the BBC, it implies that registered and head offices should be located where a group has the bulk of its activities, which, in the case of Lloyds and RBS, would be England after Scottish independence.

The Scotsman understands this is the sort of issue likely to be examined by Lloyds’ Scottish executive committee, chaired by Philip Grant, one of the organisation’s leading bankers.

Currently, Lloyds’ registered office is The Mound in Edinburgh while its headquarters, where chief executive Antonio Horta-Osorio is based, is in Gresham Street, London.

The directive would present a different challenge to RBS, which is registered in Edinburgh, but has head offices in both Edinburgh and London.

The Scottish Government’s finance secretary John Swinney claimed that the BBC report failed to take into account his proposals for a shared regulatory system that would be fully compliant with the EU.

Mr Swinney also claimed that there would be no impact on jobs.

His opponents, however, took a different view.

The leader of the Better Together campaign, Alistair Darling, said: “Today we have seen even more uncertainty emerge regarding what would happen if we vote to leave the UK.

“Firstly Lloyds, a major employer here in Scotland, talked about the impact that going it alone would have on its business.

“Now we see that there is a threat that EU law would require some of our biggest institutions to leave the country in order to be where their main customer base is. With every passing day, more risks are coming to the surface.”

Scottish Conservative finance spokesman Gavin Brown said of Lloyds’ annual report: “A clear pattern is now emerging, with increasing numbers of financial service companies having serious concerns about the uncertainty caused by the referendum.”

A spokesman for HM Treasury said: “Lloyds have now joined RBS and Standard Life in reasonably and fairly pointing out the risks and costs that arise from independence.”

Neither RBS nor Lloyds would comment on suggestions that European law could affect where their registered offices were.

Mr Swinney claimed that the report from Lloyds backed the SNP’s position that an independent Scotland should enter a formal currency union with the rest of the UK.

The finance secretary said: “Scotland has a strong and diverse economy and the point of independence is to win the powers we need to build on those strengths and create a more prosperous and secure economy – which is good for the financial sector and everyone else.”

“Lloyds Banking Group’s comments show exactly why our proposals for a formal currency area are the right proposals, why they are in the best interests of business on both sides of the Border and why that is what will be implemented by both governments.”

On the suggestion that Lloyds and RBS could be forced to move their registered offices south of the Border, Mr Swinney said: “These suggestions completely fail to take account of Scottish Government proposals for a shared system of regulation that would reflect the fact banks operate in both Scotland and the rest of the UK, and is fully compliant with the EU.

“In any event, this would have no impact on jobs, which could remain exactly where they are now. However, the fact that the majority of customers of both banks are located in the rest of the UK and that they have significant offices in both London and Edinburgh exposes the contradictions at the heart of the No campaign’s scaremongering.”