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Chancellor Alistair Darling confirms splitting of state-owned banks

Parts of Northern Rock, Lloyds and RBS will be broken up and sold to new entrants into the banking sector.

In a bid to boost competition in the sector, Chancellor Alistair Darling has confirmed that there could be three new high street banks in the UK over the next three to four years as a result.

Darling told the BBC having just “half a dozen big providers was not acceptable”, and splitting up larger players will boost choice and competition for consumers.

Darling said the new banks will be standard retail operations concentrating on deposits and mortgages.

According to press reports Santander has been allowed to bid for RBS’s branches. Last week the European Commission approved Government plans to split Northern Rock into a ‘good’ and ‘bad’ bank.

The decision could mean Lloyds sells off TSB Scotland, Cheltenham & Gloucester and Intelligent Finance.

RBS may have to sell Scottish branches of NatWest and its insurance businesses including Direct Line, Churchill and Green Flag.

Northern Rock is likely to be split into a “good bank” and “bad bank” with the good bank sold off and the assets of the bad bank wound down.

The Government’s stake in RBS is likely to rise to 84 per cent this week with an extra £19bn of taxpayer support needed through the purchase of “B” shares. It is likely to pay the Government £6.5bn to insure £270bn of toxic assets in the Government’s asset protection scheme.

An RBS statement released this morning, says: “RBS believes it is close to agreement with HM Treasury with respect to its proposed participation in the APS. RBS expects the agreement on the APS to reflect market improvements since February and RBS’s ongoing recovery whilst giving protection against future potential stressed case losses. With respect to the EC, negotiations between HM Treasury and the EC are in their final stages and will include some divestments not initially contemplated. It remains RBS’s goal that any required divestments do not threaten its recovery plan which is already underway.” An update on the APS and the EC’s position is expected no later than Friday when the bank posts its third quarter results.

Lloyds is expected to announce this week that it will not be participating in the asset protection scheme after launching a rights issue worth up to £21bn. The Government is likely to spend up to £6bn supporting the rights issue.

Virgin, which has recently applied for a banking licence, and Tesco are potential buyers for parts of the broken up banks.

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  1. I must say I wonder what consumers will make of this. In the past building societies provided the link between deposits and mortgages and I would have thought still have an important role to play. Indeed I would have thought there is a case for Northern Rock reverting to being a strong regional mutual.

    The position of the high street banks revolves around their branch networks and their dominance of the payments system. I think the combination of a visiible branch presence and the ability to get cash out of an ATM is largely what consumers want from their bank. Strength and size are important and a divestment of Halifax by Lloyds TSB would help to boost competition in the key payments and mortgage markets.

    Research by GfK for JGFR in September showed that the market share of the 10 leading main financial services brands had hit a 7 year high suggesting that consumers still have faith in the big bank brands.

    Competition across most financial services market segments is strong with a large number of non-bank providers operating.

    Money transmission separates major banks from other financial services providers and at a time of great change in payments patterns needs highly skilled management. One consequence may be that further europeanisation of UK retail banking occurs although one offsetting move would be for Standard Chartered to revisit operating a retail bank in the UK which it last considered in the late 1980s – to add to competition for UK consumers from Asia-Pacific institutions with HSBC and more recently The Bank of China.

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