UK largest banks Lloyds and RBS try to avoid EU actions

In attempt to avoid drastic measures being imposed by the European Commission, Lloyds Banking Group and Royal Bank of Scotland have submitted restructuring proposals to Brussels on how to slash their businesses. The two banks, which have received £35 billion in aid from the British Government between them, have promised to reduce their share of certain markets and sell businesses.

Yesterday the Commission published guidelines explaining its approach for assessing state aid to banks. Member governments can provide financial assistance to avoid a banking crisis, but the aid must be limited and not strangle competition. The Commission said banks must shape their business so they have a long-term future without aid.

RBS, which is 70 % state-owned, has already signed up to selling or winding down £240 billion of “non-core” assets. It has put its Asian businesses on the block and is expected also to sell some European divisions. Meanwhile, Lloyds, which is 43 % owned by the Government, is selling one of its asset management businesses. Besides, it is expected to put several more assets up for sale, potentially including Clerical Medical and Scottish Widows.

However, Lloyds is likely to have to sign up for substantial reductions in its share of the current account, mortgage and small business markets in order to appease the Commission`s concerns about its near-30% grip on high-street lending. Europe is also likely to want cuts in its huge branch network.

In addition, Brussels is in the final stages of considering a plan by the UK to divide Northern Rock into a “bad” and “good” bank, and to use the clean part of the nationalized lender to pump out £14 billion in new mortgage lending. The Commission is expected to rule on the plan in September.