EU should have gone for bigger break-up

by Ed Bowsher on 03 November 2009  |  1 comment
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It's good that the EU is cutting Lloyds and RBS down to size. It's just a shame that the forced disposals aren't going to be bigger.

I'm pleased that the EU has insisted that RBS and Lloyds should be broken up. I've said since July that break-ups would be a good idea. 

My only disappointment is that the EU hasn't gone far enough. Sure, Lloyds is going to have dispose of 600 branches and around 20% of its mortgage assets. The banking giant will also lose the TSB and Cheltenham & Gloucester brands. 

But even after these disposals, Lloyds will still have a 25% market share in both current accounts and mortgages, according to breakingviews. Yes, that's a significant fall from Lloyds' current 30% shares in both markets, but it's not exactly stunning. Indeed, 25% is a bigger share than that held by either Lloyds or HBOS prior to the merger. 

Hopefully, we'll see several new fast-growing players in the banking sector over the next few years. Trouble is, I think it will be harder for them to grow with a big 25% gorilla lumbering around. The EU may be happy to settle for 25%, but I think the government should have used its chunky shareholding in Lloyds to insist on a bigger disposal. 

The downside to a bigger carve-up is that it could reduce the value of the government's total shareholding in Lloyds  and any spin-offs. But writing as a taxpayer, my top priority is to see a competitive banking market. Ensuring that the government gets as much of its money back as possible is important to me, but not as important.

I also think the EU could have been tougher on RBS. 

Still, today's news is much better than no news. As the likes of Tesco and Virgin grow their banking businesses, it's up to consumers to foster competition.  We must all be ready to switch our loyalties when they're given poor service or shoddy products. 

Bring it on!

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