RBS and Lloyds Bank part ways in closely watched sale

Picture: Getty Images

Lloyds Bank said the UK had sold its last remaining stake in the bank, making the lender the first to re-emerge from British state ownership in a symbolic step for the country’s recovering banking sector.

In 2011, Lloyds had made a bigger loss than RBS as it was forced to compensate customers for the mis-selling of payment protection insurance and was more exposed to what became Britain’s costliest consumer scandal.

But six years on, Lloyds, which at one point was 43%-owned by the UK government, has emerged as the type of bank RBS is striving to be — a UK lender focused on retail and corporate banking.

The sale is also being closely watched here as the Government prepares to announce plans to sell the first stake in Allied Irish Banks since it was effectively nationalised, in late 2010.

At Lloyds when Portugal’s Antonio Horta-Osorio took over in 2011 he made an early decision to reduce the bank’s dependence on short-term funding and scaled back the bank’s global reach from 30 countries to six. Lloyds’s plan now is to diversify away from an over-reliance on mortgage lending, by growing other business lines such as credit cards.

The bank bought the MBNA credit card business from Bank of America for £1.9bn (€2.22bn) in December. In contrast, the UK still owns more than 70% RBS and the treasury recently said it has not budgeted to sell any shares in the bank for the next five years.

Although RBS always had a bigger challenge in rebuilding after the crisis, the two banks faced similar tasks in reducing their global footprint, cutting costs and disposing of businesses to comply with state-aid rules.

One senior British banking executive said he thought six years ago that RBS was more likely to escape first from government ownership. RBS’s recovery was slowed because the bank originally tried to trade its way out of crisis via its investment bank, according to Peter Hahn, a professor at The London Institute of Banking & Finance.

Mr Hahn said over the following years its profits from investment banking began to slump and the long-shot strategy failed. “It went for the Hail Mary pass. That delayed a lot of the recovery,” he said.

There is still work to be done. In February, RBS booked losses of almost £7bn for 2016, its ninth straight annual loss.

Laith Khalaf, an analyst at Hargreaves Lansdown, said the government also made a mistake by paying too much for RBS shares initially and then holding on to for too long in the hope that it could meet its original intention of selling the shares at a profit.

He said the UK government would have been better selling the shares at a loss because almost a decade of government involvement has been bad for the bank.

Reuters


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