Bank shake-up to bring in new competitors

 

The government will announce a banking overhaul this week which it hopes will attract new players to the market, as carve-up plans for rescued banks Royal Bank of Scotland and Lloyds are finalised.

Chancellor Alistair Darling said on Sunday he expected "perhaps three new entrants" would emerge from a process that will see the country's largest retail lenders selling off assets, including a string of high street bank branches, and shrinking back their balance sheets.

"What I want to do now is begin the process of reform and reconstruction so we have got a safer, more competitive banking system with more high street banks than we have at the moment, with new entrants coming in" Darling told BBC television.

Darling, who has frequently spoken of the need for greater competition among UK retail lenders, stopped short of confirming expectations he will block existing players in the UK market - including the acquisitive Santander - from buying the assets.

Part-nationalised RBS and Lloyds Banking Group, 43 percent state-owned, have been under scrutiny for months by EU competition regulators investigating the impact of billions of pounds received in state aid. The banks are also negotiating with the government over a major insurance scheme for bad debts.

Both banks are set to detail a final deal with the government this week, including asset sales to ease EU concerns, sources close to the matter have told Reuters.

RBS, which is set to secure flexibility but to remain in the so-called Asset Protection Scheme, is expected be told to sell its insurance arm - with top brands Direct Line and Churchill - and RBS-branded branches in England and Wales. It could revive its Williams & Glyn's brand.

Lloyds, which hopes to avoid the APS with a rights issue and other measures, is close to a deal with the government and Brussels under which it would sell Lloyds TSB Scotland, its Cheltenham & Gloucester branch network, and internet banking unit Intelligent Finance, sources familiar with the matter said. 

The Telegraph newspaper reported over the weekend that the TSB brand - the Trustee Savings Bank, bought up by Lloyds - could be brought back to market some of the assets.

"(Lloyds and RBS) will be divesting some of the holdings they have at the moment. What you really want to do is have substantial divestment - of branches or particular institutions they own - made available to other people" Darling said.

"Unless we have competition we will end up with half a dozen providers."

Among potential buyers for the banking assets set to be put on the block, which also include the rump of nationalised bank Northern Rock, are retailer Tesco and Virgin Money, the consumer credit arm of Richard Branson's Virgin Group, both of whom have announced plans to grow in financial services.

The British Bankers' Association said the restructuring plan was not surprising, but warned the process would be long and should not damage Britain's international standing.

"It will take some time for these plans to work through and this is in line with EU Commissioner Neelie Kroes' statements that state aid should be wound down over three to four years" the BBA said.

"The UK needs a successful banking sector and any plans must ensure the UK remains both internationally competitive and should help maintain our financial services industry's leading global position."