Lloyds in line to sacrifice Halifax

Sep 17 2009 by Iain Laing, The Journal

LLOYDS Banking Group may be forced to surrender its Halifax arm as a European Commission penalty for taking state aid.

The banking giant, which is 43% owed by the UK taxpayer, is said to be under threat of draconian measures by the EC in a move that would once more put Lloyds in the line of fire over its fated HBOS purchase.

Competition commissioner for the EU, Neelie Kroes is understood to have rejected Lloyds’s offer to split off Cheltenham & Gloucester and make limited disposals in Scotland. She is not thought to have made a final decision yet, but reportedly wants Lloyds to sacrifice far more of its empire.

It is believed that the bank may be able to strike a deal to keep the Halifax brand while offloading a significant chunk of its branches.

Lloyds, which declined to comment, has already suffered heavy criticism over the decision to rescue HBOS.

The acquisition has saddled Lloyds with mammoth losses and bad debt charges – accounting for 80% of the £13.4bn damage from toxic debts in the first half of this year alone.

The Government is also likely to come in for further flak over its decision to waive competition concerns to hurry through the HBOS sale if the EC rules Lloyds must sell Halifax.

The combined group is the UK’s largest retail bank with nearly a third of the market.

Its negotiations with the EC have been complicated by the impending asset protection scheme, which could see the Government take a larger stake, although Lloyds is thought to be planning only minimal take-up of the insurance on offer.

Royal Bank of Scotland, already more than 70% State-owned, is seen as having little choice but to rely on the protection scheme and is also in line for potentially tough remedial action from the EC.