Over 10 percent of the retail banking
market branch network in the UK is available to buy as Lloyds
Banking Group and Royal Bank of Scotland pay the price for
accepting state aid during the height of the economic crisis in
late 2008. But given the perilous nature of the UK economy, will
there be interest? Dan
Jones reports
Go deeper with GlobalData
A week after the European Competition
Commission foisted a harsher-than-expected breakup plan upon Dutch
bancassurer ING (see RBI 621),
troubled UK institutions Royal Bank of Scotland (RBS) and Lloyds
Banking Group have announced the terms of their own preliminary
restructuring agreements with the Commission.
The requirements which will weaken
their respective footholds in the UK retail banking market but
ultimately avoid a wholesale realignment of their businesses.
It will also open up the UK market to
further competition: the moves come at a time of widespread change
in the country’s consumer banking market with new entrants such as
Tesco Bank and Metro Bank looking to take market share from
depressed incumbents such as RBS and Lloyds as well as
reinvigorated and bullish banks such as Santander, HSBC, Barclays
and even the Post Office.
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By GlobalDataA number of Asian banks, including State Bank
of India, ICICI, Bank of Baroda and Bank of China, are
also upping their game in a market that remains in turmoil in the
wake of the financial crisis.
And while the deals for RBS and Lloyds are
stringent in their disposal requirements, a case can be made for
both banks having avoided an even worse fate.
The EC, headed by outgoing competition
commissioner Neelie Kroes, has not, for example, required RBS to
shed its 1,200-branch-strong US subsidiary, Citizens, in contrast
to the ING settlement, which required the Dutch firm to dispose of
its high-profile and successful ING Direct US unit by 2011.
Lloyds, meanwhile, was itself eager to
highlight that the situation could have been more severe.
Avoiding the GAPS will also ensure that the UK
government will not increase its current 43 percent stake in
Lloyds, but will see the bank raise £22.5 billion ($37.7 billion)
in fresh capital.
But despite such actions, the EC’s
requirements remain far from insubstantial: Lloyds has been told to
dispose of a business with the equivalent of 600 branches, a 4.6
percent current account market share and approximately 19 percent
of the group’s mortgage balances.
The bank believes that it will be able to
fulfil these requirements by divesting:
• the TSB brand;
• the 146 branches, savings accounts and
branch-based mortgages of its Cheltenham & Gloucester
subsidiary;
• the 200 branches and branch-based customers
of Lloyds TSB Scotland and a related banking licence;
• additional Lloyds TSB branches in England
and Wales; and
• its Intelligent Finance online banking
unit.
All the units would need to be disposed of
within four years; working from 31 December 2008 figures Lloyds
estimates that the businesses comprise £70 billion in customer
lending, £30 billion in customer deposits, £18 billion of
risk-weighted assets and contributed £500 million in pre-tax profit
to the group in 2008.
For RBS, complying with the EU regulations has
seen it agree in principle to the disposal of:
• a portion of the RBS branch network in
England and Wales – 312 branches – to be sold under an existing
brand name, ‘Williams & Glyn’s’;
• the six NatWest branches in Scotland;
• direct SME customers across the UK; and
• RBS Insurance, merchant acquiring business
Global Merchant Services, and its interest in global commodities
trader RBS Sempra Commodities.
The RBS retail banking businesses on the
block, comprised in total of 318 branches, equal 1.7 million retail
customers and £20 billion of assets. The bank itself said they
represent a two percentage point share of the UK retail banking
market.
Further disposals would be required in the
event of RBS’s core Tier 1 capital ratio falling below 5 percent
within the next five years, or its existing funding balance sheet
reduction targets for 31 December 2013 being missed by 10 percent
or more.
Only a severe double-dip recession would
likely bring about such a scenario, and in such circumstances RBS
would divest a further £60 billion in risk-weighted assets via
further disposals.
|
Bad debts |
|||
|
Royal Bank of Scotland – |
|||
|
Q109 (£m) |
Q209 (£m) |
Q309 (£m) |
|
|
UK Retail |
400 |
500 |
400 |
|
Ulster Bank |
100 |
100 |
100 |
|
US Retail & Commercial |
200 |
100 |
200 |
|
Non-Core |
1,800 |
3,500 |
2,100 |
|
Source: RBS |
|||
As with Lloyds, RBS has until 2013 to dispose
of the businesses. The bank said that divestments “may be effected
through initial public offerings […] in particular, RBS Insurance
is seen as a potential IPO in the later years of RBS’s strategic
plan”.
RBS added that divestments “will be timed to
maximise value”, but the bank will likely have to compromise in the
case of some units: its proposed sale of RBS Insurance earlier in
2009 was scrapped after no bidder was prepared to meet a valuation
that was seen by many analysts as overly ambitious.
Both bank’s retail banking businesses are
likely to attract attention from a range of interested parties,
with the UK government, in particular, eager to portray the
divestments as part of its attempts to introduce more competition
into the UK retail banking sector.
“To ensure these divestments increase
diversity and competition in the UK banking market, the assets can
only be sold to small or new players in the market,” said the UK
Treasury in a 3 November statement.
“The divestments from each bank will represent
a viable stand-alone entity, together representing nearly 10
percent of the UK retail banking market.”
Some parties have already voiced their
interest in some of the assets for sale, a pool of assets which
will be joined on the market by the ‘good bank’ set to be created
from the existing portfolios of state-owned Northern Rock.
Tesco, Virgin, HSBC, State Bank of
India
Both Virgin Money UK and Tesco Bank
have voiced their hypothetical interest in purchasing assets from
RBS and Lloyds.
On 10 November, HSBC chief executive
Michael Geoghegan said HSBC “would be interested in certain
portfolios”, but added the bank was “somewhat frustrated” at the
prospect of existing market players such as HSBC being shut out of
any such deal.
Such restrictions will not extend to foreign
banks, according to John Kingman, the outgoing chief executive of
UK Financial Investments, which manages the government’s bank
stakes. “I envisage no restrictions on the nationality of ownership
on any of our investments”, Kingman said on 4 November.
Resurgent Asian banks may show keen interest
in expanding in the UK. In October, State Bank of India (SBI),
India’s largest bank, for instance, said it is looking to make
acquisitions of up to $1 billion in the UK.
SBI chairman OP Bhatt has stated the bank’s UK
focus would be on capturing business from non-Indian clients rather
than non-resident Indians, adding the 40 percent growth rate seen
at the bank’s $3 billion UK business over the past two years was
expected to continue (see RBI 620).
|
RBI |
||||
|
RBI DealWatch tracks |
||||
|
Country |
Participants |
Type/value |
Description |
Date |
|
Europe, Middle East, |
||||
|
Ireland |
Numerous |
Bad bank' |
Ireland’s parliament has approved the |
13 Nov |
|
Estonia |
Swedbank |
Capital increase |
Swedbank has boosted the share capital of its |
13 Nov |
|
Greece |
Emporiki Bank |
Capital raising |
Emporiki, the Greek subsidiary of France’s |
12 Nov |
|
UK |
Lloyds Banking Group |
Capital raising |
Lloyds Banking Group has increased the amount |
12 Nov |
|
Oman |
Bank Muscat, Silkbank |
Stake decrease |
Oman Bank Muscat has said it will not |
11 Nov |
|
Spain |
UniCredit, Banco de Sabadell |
Stake divestment |
Italy’s UniCredit, the country’s largest bank |
10 Nov |
|
Denmark |
Jyske Bank |
Capital raising |
Jyske Bank, the second largest bank in |
09 Nov |
|
Poland |
Bank Millennium |
Capital raising |
Bank Millennium, the Polish subsidiary of |
06 Nov |
|
Russia |
MDM Bank, Siguler Guff |
Stake acquisition |
US private equity group Siguler Guff has |
05 Nov |
|
South Africa |
Old Mutual, Nedbank |
Strategic review |
Old Mutual’s chief executive, Julian Roberts, |
05 Nov |
|
Nigeria |
First Bank |
Potential acquisition |
The chief executive of Nigeria’s First Bank |
04 Nov |
|
UK |
Lloyds Banking Group, Royal Bank of |
Forced divestments |
The European Union has moved to break up |
03 Nov |
|
UK |
Lloyds Banking Group, Bank of New York |
Divestment |
Lloyds Banking Group has completed the |
02 Nov |
|
UK |
Northern Rock |
Forced divestment |
The European Commission has approved the UK |
28 Oct |
|
Country |
Participants |
Type/value |
Description |
Date |
|
Europe, Middle East, Africa |
||||
|
Global |
ING |
Forced divestment |
Dutch bancassurer ING is being forced to sell |
26 Oct |
|
UK |
Barclays, Standard Life Bank |
Acquisition |
Barclays has acquired Standard Life Bank from |
26 Oct |
|
Greece |
Alpha Bank, EFG Eurobank, Piraeus |
Capital raising |
Alpha Bank has announced a €986 million |
21 Oct |
|
Netherlands |
DSB Bank |
Bankruptcy |
The Netherlands’ DSB Bank has been declared |
19 Oct |
|
The Americas |
||||
|
US |
United Commercial Bank |
Bank failures |
The number of US bank failures in 2009 has |
13 Nov |
|
US |
HSBC, Santander |
Acquisition |
Santander is to purchase HSBC’s US vehicle |
10 Nov |
|
US |
Citigroup, Primerica |
IPO/divestment |
Citigroup has announced that its Primerica |
05 Nov |
|
Uruguay |
Crédit Agricole |
Divestment |
France’s Crédit Agricole has begun |
27 Oct |
|
US |
Bank of America, First Republic |
Acquisition |
A consortium of private equity firms have |
21 Oct |
|
US |
ING, Reinsurance Group of America |
Acquisition |
Reinsurance Group of America (RGA) has agreed |
16 Oct |
|
Brazil |
Banco do Brasil, IRB brasil |
Potential acquisition |
Banco do Brasil, Brazil’s largest bank by |
15 Oct |
|
US |
US Bank, BB&T |
Acquisition |
US Bank, the sixth-largest bank in the US by |
14 Oct |
|
Asia-Pacific |
||||
|
India |
HDFC, Credila Financial |
Stake acquisition |
India’s HDFC Corporation has agreed to |
13 Nov |
|
Hong Kong |
Bank of East Asia |
Possible sale |
Hong Kong lender Bank of East Asia has seen |
12 Nov |
|
Thailand |
Kasikornbank, Fortis, Muang Thai Group |
Stake increase |
Thailand’s Kasikornbank has increased its |
09 Nov |
|
India |
ICICI, Firstsource, Temasek |
Stake reduction |
ICICI has acknowledged rumours that it is to |
09 Nov |
|
China |
China Minsheng Bank |
Initial public offer |
China Minsheng Bank, the seventh largest bank |
08 Nov |
|
Japan |
Sumitomo Trust & Banking, Chuo Mitsui |
Merger |
Japanese trust banks Sumitomo Trust & |
03 Nov |
|
India |
State Bank of India, associate banks |
Acquisition |
State Bank of India has begun the process of |
02 Nov |
|
China |
HSBC, Bank of Communications |
Joint venture |
HSBC has partnered with Bank of |
28 Oct |
|
Vietnam |
HSBC, Bao Viet Holdings |
Stake increase |
HSBC has paid VND1.88 trillion ($105.3 |
22 Oct |
|
Indonesia |
RHB Bank, PT Bank Mestika |
Acquisition |
Malaysia's RHB Bank has purchased |
20 Oct |
|
Taiwan |
AIG, Nan Shan Life |
Acquisition |
Bailed-out US insurer American International |
13 Oct |
|
Source: RBI |
||||
