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EU Said to Tell Lloyds to Sell 3.7 Million Accounts (Update2)
By Jon Menon
Sept. 30 (Bloomberg) -- The European Union told LloydsBanking Group Plc to relinquish about 3.7 million consumer checking accounts to secure approval of the banks government rescue, according to a person familiar with the situation.
Lloyds has been told by the European Commission to cut its share of British checking accounts to 25 percent from 30 percent today, said the person, who declined to be identified because the discussions are confidential. The bank has about 22 million checking accounts. Lloyds is still deciding how to achieve the reduction, and may sell branches or assets to comply, the person said. The bank, which has about 3,000 branches, would seek to make a profit from any sales, the person added.
Lloyds, 43 percent government-owned, accepted a total of 17 billion pounds ($27 billion) from U.K. taxpayers following its acquisition of HBOS Plc, which made the countrys biggest provider of checking accounts the top mortgage lender. The bank is in talks to insure as much as 260 billion pounds of risky assets with the governments Asset Protection Scheme.
We are working closely with the government and the European Commission on the issue of EU state aid, a Lloyds spokesman said in an e-mailed statement. A Treasury official said negotiations are continuing. Jonathan Todd, a European Commission spokesman said the figure was premature speculation.
The bank may also seek to raise 5 billion pounds to 7 billion pounds in a share sale in November, said the person.
Consumer Detriment
Any Lloyds restructuring plan should address competition concerns in retail banking, European Competition Commissioner Neelie Kroes said yesterday.
Government aid shouldnt allow the bank to reinforce and consolidate its leading position on markets which are already concentrated, to the detriment of consumers and competitors, Kroes told the European Parliament in Brussels.
Companies can appeal against EU state aid decisions at the European Court of First Instance in Luxembourg.
Lloyds declined 1.1 percent to 103.7 pence, reducing its gain this year to 10 percent and its market value to 28.2 billion pounds.
A cut in checking accounts and business banking could cost the bank between 500 million pounds and 1.1 billion pounds in earnings, Simon Pilkington, an analyst at JPMorgan Cazenove Ltd. in London, estimated today in a note to investors. Lloyds will have five years to implement any sanctions, Pilkington wrote.
The consumer banking unit of Lloyds made a profit of 360 million pounds in the first half of the year as other units including corporate banking made a loss. As a whole, Lloyds posted a first-half loss of 3.1 billion pounds after setting aside 13.4 billion pounds, largely for souring commercial and real estate loans.
Lending Pledges
Lloyds is continuing discussions with the Treasury about the APS, and may seek to reduce the amount insured from 260 billion pounds, or exit the program altogether, the bank said Sept. 18. Even so, the bank may stand by pledges made to the government in March, when it agreed to raise U.K. lending by 28 billion pounds over two years, the person said.
Royal Bank of Scotland Group Plc, Britains biggest government-controlled bank, may be forced by the EU to reduce its share of small-business lending, Chief Executive Officer Stephen Hester said at a conference in London yesterday.
While a sale will be disruptive to clients, its unlikely to be a major shareholder event, he told the conference organized by Bank of America Merrill Lynch.
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