The European Commission has concluded that proposals by the UK authorities to amend conditions for the divestment of Lloyds Banking Group’s (LBG) UK retail business, in the context of LBG’s restructuring plan, are in line with EU state aid rules.
The Commission has found that a delay in the divestment of LBG’s UK retail bank entity Verde (rebranded TSB), will not jeopardise the viability of the business.
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The Commission has also accepted changes in the scope of the divestment, in particular the removal of certain assets and liabilities, as they will leave TSB in a better financial position and will therefore reinforce its ability to effectively compete in the market despite a reduced balance sheet.
Commission vice president in charge of competition policy Joaquín Almunia said: "Establishing TSB as a standalone market player will increase competition in the UK market for retail banking services. The Commission has agreed to extend the deadline for divesting TSB because the UK authorities and LBG have demonstrated their commitment to create a viable and competitive bank. The proposed changes in the divestment perimeter will enhance TSB’s profitability and preserve its viability as a challenger in the market."
In 2009, the Commission approved state aid granted to LBG by the UK (see IP/09/1728), on the basis of a restructuring plan for the bank.
As a key measure to limit distortions of competition created by the aid, the UK committed to divest part of LBG’s UK retail banking operations, initially called Verde, now branded TSB. LBG tried to divest TSB by proposing to transfer its customers, branches, assets and liabilities to a trade buyer with existing banking operations in the UK. LBG had rapidly started the carve-out of this perimeter.
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By GlobalDataHowever, no trade buyer could eventually be found. The Co-operative Group plc agreed non-binding heads of terms in July 2012, but pulled out after long negotiations in April 2013. Therefore, LBG had to modify its plans and start to establish TSB as a standalone bank. As a consequence, LBG was unable to comply with the committed deadline of 30 November 2013 and the UK requested to postpone the disposal to 31 December 2015, with a possibility to extend this deadline if the state of the UK capital markets does not allow an orderly disposal by this date.
The UK also sought authorisation to reduce the perimeter of the divestment as compared to the commitment in the restructuring plan.
The proposal is to remove assets and liabilities that represent a burden in the current environment of low interest rates and higher prudential requirements.
A large part of these changes had been requested already by the trade buyer during the – eventually unsuccessful – negotiations in 2012. Additional changes, enhancing profitability and growth prospects, were introduced to comply with recommendations by the UK competition authority OFT to improve TSB’s ability to compete in the UK retail market.
