DEALWATCH: Lloyds Branches Seen Prize Asset In Banking Shakeup
March 14 2011 - 6:57AM
Dow Jones News
The sales process is scarcely underway but the competition is
already looking intense for 600 branches being readied for sale by
Lloyds Banking Group PLC (LYG).
At least two potential bidders--Virgin Money and NBNK
Investments PLC (NBNK.LN)--are keenly interested, according to
people familiar with the matter, while National Australia Bank Ltd.
(NAB.AU) has previously said it would consider acquisitions on its
own or with partners to add to its Clydesdale and Yorkshire
banks.
The Lloyds branches are being sold as a condition of the state
aid the group received in the financial crisis, which resulted in
the U.K. government taking a 41% stake. They comprise branches,
savings accounts and branch-based mortgages of the Cheltenham &
Gloucester brand; branches and branch-based customers of Lloyds TSB
Scotland and a related banking license; additional Lloyds TSB
branches and customers in England and Wales; the TSB brand; and the
Intelligent Finance brand, customers and accounts.
In all, the sale would give the winner roughly 5% of the U.K.'s
current account market and a similar share of mortgage lending.
Analysts estimate the price tag at around GBP3 billion.
Lloyds doesn't need to make the sale until November 2013, but
new Chief Executive Antonio Horta-Osorio earlier this month said he
is speeding up the process. A formal adviser is expected to be
appointed soon.
Coming sooner rather than later suits Virgin Money, which wants
to underpin its retail banking ambitions with a major purchase. The
group is also considering buying the Norwich & Peterborough
Building Society, which could be combined with Northern Rock PLC to
create a larger entity.
Nationalized lender Northern Rock isn't officially up for sale
yet but last week said it still aims to return to private ownership
when conditions are right.
An early sale of the Lloyds branches is also good for NBNK,
which at the moment is nothing more than a cash shell serving as a
place-holder for further capital raising if it can win the Lloyds
branches or similar assets.
Though NBNK's incoming CEO, Gary Hoffman, held the top job at
Northern Rock, NBNK has little interest in acquiring that bank,
NBNK Chairman Peter Levene has said, since it only consists of 75
branches and its market share is tiny. NBNK in its 2010 results
Monday repeated its aim to build a business with between 4% to 6%
of the U.K. banking market and a branch network of 400 to 600
branches across Scotland, England and Wales.
For NAB, an additional acquisition is seen by analysts as long
overdue, after having lost out on a smaller branch network put up
for sale last year by Royal Bank of Scotland Group PLC (RBS) that
would have added scale to its existing holdings. Banco Santander
SA's (STD) Santander UK won those branches.
Without a purchase, analysts say Clydesdale and Yorkshire will
continue to look like potential takeover targets for someone else,
if NAB's interest in the country were to wane.
For the RBS branches, it had hooked up with Spain's Banco Bilbao
Vizcaya Argentaria SA (BBVA.MC), potentially introducing another
new player to U.K. banking.
These bidders, and any others to emerge, will be closely
watching for news from the government-appointed Independent
Commission on Banking, which is reviewing the U.K. banking sector
with an aim of making it more stable and competitive.
Its interim report is due April 11, before making final
recommendations to the government in September that could include a
call for radical steps such as further ordered sell-offs at RBS and
Lloyds, to cut their market share.
Retail and investment banking could also be separated across the
sector, possibly creating further opportunities for buyers.
-By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451;
margot.patrick@dowjones.com
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