Lloyds' Asset Disposal Could End Up In Trustee's Hands
November 04 2009 - 12:12PM
Dow Jones News
Lloyds Banking Group PLC (LYG), in a worst-case scenario, could
end up having to pay for the disposal of its retail banking assets
if it doesn't find a buyer within the four-year timeframe, it
disclosed in a prospectus.
"In particular, should the group fail to complete the disposal
of the retail banking business that the group expects to be
required to divest within four years, a divestiture trustee would
be appointed to conduct the sale, with a mandate to complete the
disposal with no minimum price (including at a negative price),"
the U.K. bank said under "risk factors" of its prospectus detailing
plans to raise money from shareholders.
On Tuesday, the 43%-government owned bank unveiled a plan to
free itself from increased government assistance by raising GBP21
billion in fresh capital, instead of participating in an expensive
scheme to insure billions in toxic assets.
Lloyds also said it will have to sell more than 600 branches in
four years, representing a 4.6% current account market share and
about 19% of its mortgage balances, to satisfy the European Union
over competition concerns related to the government aid the bank
received last year.
It plans to sell Cheltenham & Gloucester branch network,
along with C&G savings and certain mortgages, Lloyds TSB
Scotland, additional TSB branches in England and Wales, and
Internet banking unit Intelligent Finance.
Lloyds and government officials have said they expect good
demand for the assets. The government hopes new market entrants
will snap up the assets, increasing competition in the sector.
In the prospectus, however, Lloyds warned that "there is no
assurance that the price that the group receives for any assets
sold pursuant to the restructuring plan will be at a level the
group considers adequate or which it could obtain in circumstances
in which the group was not required to sell such assets..."
A spokesman for Lloyds said a trustee, if needed, would be
nominated by the U.K. government for approval by the EU. Lloyds
declined to comment further.
The European Commission wasn't immediately available to
comment.
Analysts seemed divided on the level of interest for the assets
both Lloyds and Royal Bank of Scotland Group PLC (RBS) are
selling.
Like its peer, 70%-government owned RBS is also being told by
the EU to divest from some businesses within four years, including
branches in Scotland, in England and Wales, and the accounts of
some small and midsize business customers across the U.K., totaling
about 2 million customers and GBP20 billion in assets.
"There will be plenty of potential buyers with new entrants such
as foreign banks, start-ups and private equity firms joining
existing players," said Neil Tomlinson, head of retail banking
consulting at Deloitte.
The list of potential bidders ranges from existing U.K. players
such as National Australia Bank (NAB.AU), owner of the Clydesdale
and Yorkshire Banks; Spain's Banco Santander SA (STD); and The
Co-operative Bank; new entrants like Virgin Group and Tesco PLC
(TSCO.LN); and a number of large European banks, including French
bank BNP Paribas SA (BNP) and Spain's Banco Bilbao Vizcaya
Argentaria SA (BBV).
Others analysts weren't so bullish, however.
"Branches are big on capex, small on margins, and with these
particular assets you don't even get a recognizable brand - well
not unless you are old enough to remember Williams & Glyn's,"
said Steve Cater, head of corporate banking for financial services
at PricewaterhouseCoopers.
The restructuring plans between the banks and the EU are pending
final approval by the European Commission, but that is largely
expected to happen within weeks.
RBS hasn't filed a prospectus because, as opposed to Lloyds, it
isn't raising capital independently, instead participating in a
revised government program to insure GBP280 billion in toxic assets
on its books.
It is unclear if a trustee would also be appointed to sell RBS'
assets if the bank can't do it within the timeframe. An bank
spokesman couldn't immediately comment.
-By Patricia Kowsmann, Dow Jones Newswires. Tel
+44(0)207-842-9295, patricia.kowsmann@dowjones.com
(Marietta Cauchi contributed to this article.)
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