September 11, 2013 10:53 pm

Spin-off removes hurdle to Lloyds reprivatisation

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The last obstacle to starting the reprivatisation of Lloyds bank was removed on Wednesday, as the UK’s competition regulator said that the group’s spin-off of TSB as a separate subsidiary would create a strong new rival on the high-street.

Lloyds avoided the potential penalty of having to divest more branches or assets to enhance the EU-mandated sale that was imposed four years ago as a penalty for receiving state aid. Instead, it is to donate an annual £50m of profits for four years to the start-up TSB – an idea understood to have been suggested to the Office of Fair Trading by the bank, and accepted by the OFT.

Lloyds, which is 39 per cent owned by the government, has been trading above the 74p average price at which the government acquired its near-£20bn stake five years ago, fuelling fresh suggestions that chancellor George Osborne will kick off reprivatisation soon.

Royal Bank of Scotland, which is also divesting a portfolio of branches, under a project codenamed Rainbow, was not asked to change the terms of its spin-off.

Mr Osborne said in response to the OFT ruling: “This government is getting on with the biggest overhaul of our banking system for a generation, and more competition is a key part of our vision for the future.”

The OFT assessment was instigated at Mr Osborne’s request early this year. “I asked the OFT to assess the impact that new ‘challenger’ banks created by Lloyds and RBS selling off some of their branches will have on strengthening competition, and to identify what more can be done,” the chancellor said. “I welcome the OFT’s report.”

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