Lloyds may be forced to sell assets

The European Commission (EC) has given the strongest indication yet that it will force Lloyds Banking Group (LBG) to sell assets, to counter the competitive advantages resulting from State aid.

EC cmmissioner Neelie Kroes, who is currently assessing LBG’s restructuring plans, told the European Parliament last week that aid would not be allowed to consolidate and reinforce the leading position which the bank enjoys in the mortgage market.

Amy Manklelow, spokesperson for LBG, said the bank was working with the Government and the EC on the issue of State aid, but did not elaborate on any disposal of assets.

Jonathan Cornell, head of communications at First Action Finance, said a break-up of LBG would promote competition in the market among lenders. He added: “It seems like LBG will be forced to sell some assets because the EC believe it is unfair that taxpayer money has in effect led to a mortgage market monopoly. Selling Cheltenham & Gloucester (C&G) or Halifax would make the market more competitive. It would also reduce market share and bring it extra money so it can reduce its government dependence.”

Ian Gray, mortgage manager at Large Mortgage Loans, said a reduction in Lloyds’ presence or competitiveness could open up the market for new players.

He added: “Some lenders have expressed an interest in the UK mortgage market, and if Lloyds were to sell branches, this could be a potential opportunity for them to get involved.”

Kroes’ comments , which come just weeks before the EC decision on whether the £17bn Government bailout of LBG distorted competition in the market, echo concerns from the Building Societies Association (BSA) over the potential for Northern Rock to compete unfairly. Last week, the trade body called for the lender to be remutualised in order to repay its taxpayer stake and create a strong mutual sector.