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The EU shows its teeth over Lloyds

Divestment plans to be imposed on Lloyds show the EU competition commission will not let European banks off the hook lightly for their past sins.

Uncertainty is growing over the scope and scale of restructuring plans to be imposed by the EU Competition Commission on European banks that have been kept alive by state aid.

On October 29, Lloyds Banking Group announced to its shareholders that, based on its advanced discussion with the Commission, the final terms of its restructuring plan, including any required divestments of assets, will not have a material impact on the Group. Its shares rallied sharply on this news.

Over the following weekend, UK chancellor Alistair Darling revealed that Lloyds would indeed be expected to divest some large parts of its business in return for the government support it has already received. These could include big parts of its retail network, such as Cheltenham & Gloucester, TSB Scotland an online bank Intelligent Finance.

It makes you wonder what Lloyds’ management considers ‘material’.

Then again, such news should really have come as no surprise. In June, when the EU approved a plan to restructure Commerzbank following its recapitalization by the German state, it required a roughly 20% cut in the balance sheet and the divestment of the majority of Eurohypo by 2014.

It was never clear what had changed at Lloyds, in which the UK government has a 43% stake, since European competition commissioner Neelie Kroes addressed the British Bankers’ Association on June 30 2009 and analyzed the consequences of the UK government keeping the country’s financial sector alive with £1.26

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