BANK OF Scotland (Ireland), the Irish unit of the UK-owned Lloyds Banking Group, faces further uncertainty over its future as the EU considers whether to force a break-up of its parent bank.
The European Commission has yet to decide any measures to be taken to address competition concerns after Lloyds, which is 43 per cent owned by the UK government, received billions of pounds in state aid. The commission may force Lloyds to sell off all or part of Halifax, the UK’s largest mortgage lender, as a condition of its receipt of the aid, the Times newspaper in London reported. The commission is expected to make a decision in the next few weeks. But finding buyers could be a hurdle.
Spain’s Santander has long been seen as a potential buyer, but it is already the second biggest player in the UK mortgage market. A spokesman for Bank of Scotland (Ireland) declined to comment on the implications of such a move for the Irish bank and its Halifax retail branch network.
However, informed sources said the Halifax chain in Ireland was of a considerably smaller scale than its namesake in the UK and based on a different footing, though the Irish retail network still may be considered by Lloyds as part of any sell-off of Halifax in the UK.
Bank of Scotland (Ireland) postponed the outcome of an internal review of its operations pending a ruling by the commission on the conditions of the state investment.
The bank, which employs 1,700 staff in Ireland, was considering a radical reduction in its business, including the closure of the Halifax retail network. The lender has said the review is “open ended”.
The bank has since signalled that it wishes to form part of any merger of the smallest lenders in the banking sector into a “third force” to compete with the country’s two largest banks, Bank of Ireland and Allied Irish Banks (AIB).
The Government is weighing up a merger of Irish Life Permanent’s bank, Permanent TSB, and the State’s two building societies, Irish Nationwide and EBS, following the creation of Nama.
The State’s “bad bank” will buy just under a fifth of the loans in the Irish domestic banking sector, reducing the size of the lenders and in particular Irish Nationwide.
Nama will inject up to €54 billion in additional liquidity into the banking system, which may lower the key loans-to-deposits ratio at Irish Nationwide and EBS, helping to facilitate a merger.
If the commission forces Lloyds to sell Halifax, it will unpick Lloyds’ takeover last year of beleaguered rival HBOS, which owned the mortgage lender.
Lloyds agreed to buy HBOS, which was hobbled by billions of pounds of toxic loans, in a government-engineered takeover to prevent its heavily leveraged rival collapsing amid the credit crunch.
– (Additional reporting, Reuters)
