Financial Regulatory Forum

EU races towards ruling in UK banks probe

By Reuters Staff
September 15, 2009

By John O’Donnell and Foo Yun Chee
BRUSSELS, Sept 15 (Reuters) – The EU’s executive arm will be primed for a decision within weeks on whether to let Lloyds and Royal Bank of Scotland offload problem investments to the state, a ruling that could force a shake-up of the troubled lenders.

Analysts believe the European Commission could demand an overhaul of RBS or Lloyds in return for letting them transfer more than half a trillion pounds of problem loans to the state.

On Tuesday, a spokesman for Neelie Kroes, the European Union’s powerful competition czar, said officials had collected nearly all the information they needed to decide on the deal.

“We expect to receive details of how Lloyds and Royal Bank of Scotland will benefit under the UK asset protection scheme within weeks,” said spokesman Jonathan Todd, adding that other European banks were also under the spotlight.

Kroes will leave her job as early as next month with the end of the current Commission’s term in office, and is likely to decide such issues before then.

The Commission — the civil service or executive of the European Union — on Tuesday questioned a similar scheme for Dutch financial group ING, saying the arrangements might be too generous.

This tough line may worry other banks such as RBS or Lloyds, which are similarly turning to the government for help.

Lloyds said earlier this year it wanted to include more than 260 billion pounds ($433 billion) of loans in the state-sponsored warehouse designed to keep them until confidence and prices recover.

RBS had hoped to shift about 325 billion pounds from its tattered balance sheet.

Lloyds — 43 percent owned by the state — is Britain’s largest retail bank with more than one in three home loans in the recession-stricken country. Industry sources have said it is already preparing to sell parts of its business.

RBS, meanwhile, has the biggest share of the British banking market for small- and medium-sized companies.

RBS and Lloyds declined to discuss the EU’s announcement. UKFI, which manages the UK government’s investments in banks, was not immediately available for comment.

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