Kroes means business

August 23rd, 2009

European commissioner Neelie Kroes (pictured above) means business when it comes to breaking up banks that have received state-aid but which have too dominant a position in their home markets — and she has Lloyds Banking Group and RBS firmly in her sights.

A former Dutch government minister, Kroes has made it her mission to root out anti-competitive practices, illegal subsidies, price-fixing cartels and the abuse of state aid across Europe since being appointed commissioner in 2004.

She recently said: “The need for competitive market structures is stronger than ever; the likelihood of significant divestments by RBS and Lloyds is strong.”

Gerry Rawcliffe, managing director of Fitch Ratings’s financial institutions rating group, last week reinforced the message, saying: “The capacity for the Commission to materially influence both the future shape of state-aided banks and their capital remuneration policy should not be under-estimated.”

He said enforced asset sales, branch closures, commitments to capping market share and pricing could all be on the agenda for RBS and Lloyds, which acquired HBOS in January.

The move heightens the chance Lloyds will be forced to divest itself of one of its branch networks – perhaps Halifax or the former Lloyds TSB network in Scotland. Such a move would be welcomed by campaigners for competition and financial biodiversity.

RBS is expected to have to find ways of unwinding its dominant position in small business banking.

Fitch Ratings last week downgraded hybrid capital instruments (subordinated debt) of both Lloyds and RBS, after the EC revealed it could force the banks to default on coupon payments in favour of more senior debts.

The Commission said that: “Banks should not use state aid to remunerate equity and subordinated debt when those activities do not generate sufficient profits”.

A spokesman for RBS said: “We fully recognise the legitimate role of European Commission in this process and we’re co-operating fully with them and HM Treasury.

“We’ve already presented a significant and radical restructuring plan which will reduce the size of RBS and the assets on the balance sheet by one-fifth, and this is already underway. It remains to be seen whether this will be sufficient from the commission’s perspective. Discussions are ongoing.”

An industry source said that whereas RBS’s market share has not altered as a result of last year’s government bail-out, Lloyds’ market share positions increased dramatically through the government sanctioned rescue takeover of HBOS.

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Posted by Ian Fraser on Aug 23 2009. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry