THREE NEW banks are to be created in the United Kingdom, following the British government’s decision to sell off parts of Royal Bank of Scotland, the Lloyds Banking Group and Northern Rock.
The new operations, chancellor of the exchequer Alastair Darling said yesterday, will have to concentrate on offering “boring” banking services, such as savings and current accounts and mortgages.
“Boring banks can actually be quite good banks. The problem with some of our banks is they got far too exciting and too interesting with catastrophic consequences,” Mr Darling told the BBC’s Politics Show.
The move will effectively bring about the recreation of the Trustee Savings Bank, which was absorbed by Lloyds, while hundreds of high-street banks owned by RBS will form the nucleus of a bank to be called Williams and Glynn.
The final element of the plan will be formed by the sale of the profitable parts of Northern Rock, which collapsed in 2007 when it was unable to borrow short-term money on the credit markets. Currently, Barclays and the Spanish-owned banking giant Santander, which took over Abbey National, along with HSBC have “a monopoly” on retail banking in the United Kingdom, he said.
“If we don’t have more competition we’re going to end up with perhaps half a dozen big providers and that really would represent quite a major reduction in choice and that just would not be acceptable,” Mr Darling added.
The British government owns 70 per cent of RBS, which this year posted the biggest-ever loss in UK corporate history and 43 per cent of Lloyds, but it is about to invest a further £6 billion into the latter.
The plan to create three new banks may take until 2013 to complete. Mr Darling said: “I’m not interested in fire sales. I will only sell when the conditions are right and we can get our money back.”
However, the British Bankers Association warned that the new banks needed to be able to offer more than just basic banking services if the UK is to “maintain our financial services industry’s leading global position”.
Some bankers warned that a reorganisation on the scale proposed by Mr Darling will keep the banks busy for years dealing with internal issues rather than customers’ needs, said former Lloyds executive, Peter McNamara.
Mr Darling, who is expected to formally to announce the plan on Thursday, met the chief executive of RBS, Stephen Hester last Friday to discuss the final shape of the plan, sources said yesterday.
Existing banks operating in the UK will be barred from buying the three new banks, leaving the way open to competitors from the US, Australia and the Middle East, and companies like Tesco and Virgin.
Tesco already offers credit cards, loans, insurance policies and saving accounts, while Virgin Group’s Virgin Money – part of billionaire Richard Branson’s empire – applied on October 23rd for a full banking licence.
RBS may also be required to sell its Churchill and Direct Line insurance operations; parts of its investment banking business and Citizen Financial in the United States, while Lloyds may lose Cheltenham Gloucester and its internet bank, Intelligent Finance.
The plan is likely to meet with the approval of the European Commission approval, which has warned that it does not want to see banks backed by any EU government enjoying a commercial advantage over others.
Lloyds is seeking to reduce its dependence on the British government with a plan to raise billions from private investors, though it would require another cash injection from the treasury to ensure that its 43 per cent stake is not diluted.
