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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. 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. However, 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.
The Commission has concluded that, overall, the amendment proposals do not modify the balance of the restructuring package, which still meets the objectives of limiting distortions of competition and ensuring that the bank and its owners adequately contribute to the cost of LBG's restructuring. Moreover, the Commission is satisfied that the viability and competitiveness of TSB will not be endangered by the delay in the divestment or by the reduction of its scope.
Background
LBG is one of Europe's largest financial services groups. During the financial crisis, in late 2008, the UK Government facilitated the takeover of HBOS, which was close to bankruptcy, by Lloyds TSB and LBG received high amounts of state aid, including a recapitalisation of £17 billion from the UK State against the issuance of ordinary and B Shares.
The Commission assessed the measures granted to LBG under the EU rules on state aid for the restructuring of banks during the crisis (see IP/13/672). These rules are aimed at restoring the long-term viability of banks, ensuring that the aid is limited to the minimum necessary to achieve this result without a waste of taxpayers' money and limiting the distortions of competition brought about by the subsidies, which give aided banks an advantage over their competitors who received no such state aid.
Today's decision does not affect the part of the restructuring plan aimed at restoring the viability of LBG, since that part was correctly implemented and the monitoring of the restoration of viability is now over.
The non-confidential versions of this decision will be made available under the case number SA.29834 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.
