FT: Changing face of high street banking

Changing face of high street banking

By Steve Lodge, Lucy Warwick-Ching, Jo Cumbo and Ellen Kelleher Financial Times Published: November 3 2009 13:07 | Last updated: November 6 2009 21:47

Royal Bank of Scotland (RBS) and Lloyds Banking Group have been given four years to sell off some of their assets, to comply with European rules on banks receiving state aid. FT Money examines what this will mean for customers.

What are the banks selling? Lloyds Banking Group has agreed to dispose of 600 branches and give up a 4.6 per cent share of the UK current account market as well as 19 per cent of its group mortgage assets. It will do this by selling the TSB brand, its Cheltenham & Gloucester (C&G) mortgage operation, Lloyds TSB Scotland and a related banking licence, as well as its Intelligent Finance internet business. RBS is selling 318 branches, including its RBS branch-based business in England and Wales and its NatWest branches in Scotland. It is also selling its insurance brands: Churchill, Direct Line, Privilege and Green Flag.

What will these sell-offs mean for cash savers? Savers already benefit from a competitive market for new deposits, experts say, but the sale of Lloyds' businesses such as C&G and Intelligent Finance could intensify the battle. David Black, banking consultant at Defaqto, the research firm, said the proposed sell-offs should be good for savings competition if the buyer is a new entrant that has to establish a track record of offering attractive rates. But if a buyer is an established savings provider, there could be less benefit. However, existing customers should remain vigilant to any downgrading of their rates, warn experts. Sell-offs could also offer further protection of savers' cash in the event of bank failure. Currently, savers are covered for £50,000 in total across the old HBoS brands, and another £50,000 for funds held with the previous Lloyds TSB brands. Where a provider is sold, it will be covered separately, potentially offering savers an additional £50,000 of protection.

Will Lloyds and RBS current accounts be affected? Probably not. But the deposit rates the two banks offer are not as good as those advertised by some of their high street rivals. Alliance & Leicester pays 6 per cent on its Premier Direct account and Abbey offers 6 per cent to clients who deposit a monthly sum of £1,000. In comparison, RBS pays just 0.1 per cent on its current account while Lloyds pays 2.5 per cent on deposits of £1,000 per month.

Will the restructuring boost competition in mortgages? Yes. The UK banking market has fewer brands than many countries and choice has reduced in recent years. Francis Ghiloni, commercial director at realpricecomparison.com, says: "At the moment, Lloyds controls 30 per cent of the mortgage market but it is not a very competitive player. At some point, lending will come back and it is much better if this happens where there is a vibrant number of players offering competitive products, rather than just three or four giants."

Melanie Bien, director at Savills Private Finance, says: "The new banks won't have the legacy issues, so will be able to offer better pricing as they won't have to repair their balance sheets with massive profit-making products". Possible new entrants include Virgin Money and Tesco. Mortgage brokers also suggest C&G's branch network could prove attractive to an overseas bank looking to break into the UK.

What about my C&G mortgage? Existing borrowers with a C&G mortgage will simply become customers of another bank once this arm is sold. If you have a fixed- rate mortgage, the new owner will not be able to change your terms and conditions. But C&G has one of the lowest standard variable rates and a new owner may be able to raise that.

RBS is selling off its insurance arm. How will that affect these products? RBS has about 17m insurance policies through its various brands. Customers of Direct Line and Churchill will be affected as well as those who bought insurance from Privilege and Green Flag. But consumers will see little immediate impact as the bank has four years to divest these.

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Reply to
kuacou
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Hmmm. That's not what it says here:-

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"Alistair Darling (right) has today said state-backed trio Lloyds Banking Group, Northern Rock and the Royal Bank of Scotland (RBS) will write to customers asking them which bank they would prefer to be a part of following the break-up."

... or here:-

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"[Alastair Darling said:] You can't compel a customer to move bank."

Reply to
Tim

Lloyds TSB and Lloyds TSB Scotland have separate banking licences and hence separate £50,000 limits. On the Lloyds side, there is also Scottish Widows, AMC Bank (specialises in accounts for farmers) and Lloyds TSB Private Banking. They have separate £50,000 limits. Cheltenham & Gloucester is part of the English Lloyds TSB licence.

On the HBOS side, Bank of Scotland and Sainsburys have separate licences. Everything except for Sainsburys is under the Bank of Scotland licence.

What will happen, unless David Cameron changes it when he takes over next June, is that Lloyds TSB Scotland will revert to TSB, and Intelligent Finance, Cheltenham & Gloucester and some of the English Lloyds TSB accounts will move over to that licence. There will be the same number of £50,000 limits as before, but they will be distributed between the brands differently. So if for example you have £50,000 in each of Lloyds TSB Scotland, C&G and IF; at the moment you are fully protected, but after the re-organisation you won't be. If you have £50,000 in Lloyds TSB England and another £50,000 in C&G; at the moment you aren't fully protected, but you might be after the reorganisation depending on where your Lloyds Account goes. Similarly, if you have £50,000 in IF and another £50,000 in one of the other Bank of Scotland divisions, you are not fully protected at the moment, but you will be afterwards.

Lloyds will then have accounts under the Lloyds TSB England, Scottish Widows, AMC, Lloyds TSB Private Banking, Bank of Scotland and Sainsburys licences. They may chose to combine some of them. Bank of Scotland is likely to stay because it has a licence to print money. Sainsburys will probably stay because Lloyds only owns 50% of it. The supermarket chain owns the other 50%. It is very possible that some or all of the other ones get transferred over to Bank of Scotland.

Elsewhere, you should watch out if you have money in both Barclays and Standard Life. Barclays has taken over most of Standard Life Bank and may well combine the licences in the future.

On the RBS side, Royal Bank of Scotland, Ulsterbank, Natwest and Coutts are separate licences. RBS will at the very least keep both RBS and Ulsterbank because they both have licences to print money, but Williams & Glynn could well become a new licence.

Reply to
Jonathan Bryce

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