THE overhaul of Royal Bank of Scotland and Lloyds Banking Group has begun, with the two chief executives knowing they have little choice other than to accept the European Union and Treasury demands for a dismantling of their empires.
Of the pair, Stephen Hester at RBS must be feeling he was dealt the worst hand – and the markets agreed.
Yesterday he delivered a frank and eloquent account of where the bank finds itself. While diplomatically admitting that he fully understood th
e public policy requirements, he did not hesitate to question the decisions taken, arguing they may adversely affect the bank's prospects.
It was quite powerful stuff. "Customers would be pawns in a bigger game," he said in an interview later. Even his own 13-year-old son, who has just opened an account in his father's bank, would have to close it if he wanted to stay with the old man's business.
Whatever niceties he chose to pardon those judging RBS, Hester knows that the task of building it back to strength has not been made any easier by competition commissioner Neelie Kroes' handiwork and the markets marked the shares down severely, making Hester's task of restoring shareholder value and returning cash to taxpayers all the more difficult.
The final carve-up of RBS leaves its former status as a global operator in tatters, its chances of competing with those banks untouched by the burden of state aid all the more difficult. Its brand will retreat back over the Border, the RBS core of the bank becoming once again a largely provincial outfit.
Kroes' verdict looked to be tinged with political punishment for the misdeeds of Hester's predecessor as, commercially, there are aspects of the disposals programme that do not make obvious sense. No-one thought until recently that the insurance businesses would be brought into the shake-up, or that RBS's US subsidiary, Citizens, would enter any discussions, given that it has no business in Europe.
Insurance was never a factor in the banking crisis, which was all about investment banking. Yet Direct Line and Churchill are getting pummelled when they were innocent bystanders.
As Hester said to me yesterday, selling the investment and commodity businesses will not do much to improve competitiveness, as they'll probably end up in the hands of rivals, thereby reducing competition.
Daniels, on the other hand, may be a little more comforted that the final outcome was not so severe. Offloading TSB in Scotland, the C&G mortgage business and Intelligent Finance was regarded in the City as an escape from what could have been a much bigger break-up, particularly if Lloyds had been ordered to sell Halifax.
Lloyds may be shouldering some huge capital burdens, but it admitted in its statement last week that the eventual settlement would have no material impact on the group.
Selling TSB Scotland? Lloyds Scotland boss Archie Kane now admits that the bank would have disposed of some of the branches anyway.
Selling C&G? It had intended to shut down the branch network and fold the business into the group.
Selling Intelligent Finance? It was already closed to new business.
No wonder Lloyds must be thankful that it has not suffered a bigger hammering. Could that be something to do with the government putting it together in the first place? After all, it would look like a seriously bad decision if Downing Street, having encouraged the creation of Lloyds Banking Group, was ordering its piecemeal destruction.
Hester, meanwhile, did offer one or two interesting outcomes to RBS's fate, including one suggested in this column yesterday: floating the insurance businesses. An IPO would satisfy all parties and with some political nous the new business could be encouraged to base itself in Scotland, providing thousands of jobs.
One for Jim Murphy and Alex Salmond to think about.
