Lloyds and RBS face fire sale of their assets

BRITAIN'S semi-nationalised banks Lloyds and RBS may be forced to engage in a fire sale of parts of their businesses as the price for their multi-billion-pound government bail-outs, it was claimed last night.

The fears emerged on the day that the Lloyds Banking Group – 43 per cent owned by the taxpayer – announced a further 2,100 job cuts across the UK, including more than 350 in Scotland.

The giant bank could now be forced to sell off brands such as the Bank of Scotland and Scottish Widows as a condition for its taxpayer-funded rescue.

The fresh concerns for the banking group's future came in a blunt warning from the EU Commissioner for Competition that state aid must be given only on condition of restructuring.

Under competition rules, the banks have to get approval from Brussels for the vast government support they received last year.

Speaking at the British Bankers Association annual conference in London, the European Commissioner for competition Neelie Kroes said there was a "clear case" for the Commission to follow its rules on state aid for banks such as Lloyds and RBS.

"This means restructuring must follow rescue aid," she said. "Banks cannot be rescued for ever. They need to restructure to have a sustainable business without relying explicitly or implicitly on another bail-out."

Senior banking sources admitted last night that her comments had significantly raised the bar, implying that Lloyds could be forced to sell off parts of its core business such as Scottish Widows Insurance and Insight Asset Management in order to qualify for state aid.

Analysts said that the EU's "sabre-rattling" could even mean that Lloyds would be forced to sell parts of its retail empire, such as the Bank of Scotland.

One banking source said: "The Bank of Scotland may have to be sold off. The language coming from the EU is definitely stronger now about what they need to do to qualify. This is getting quite serious for them now."

Lloyds has already openly conceded that it may have to "divest or exit core businesses" as a condition of getting state aid. RBS may also be forced to sell off further parts of its business in addition to its Asian operations, which are already being wound down. Lloyds is now 43.5 per cent owned by the state, while RBS is 70 per cent state-owned. As well as taking government equity, both are using the state's asset protection scheme, which allows them to ring-fence toxic assets.

The EU warnings came as the consequences of the bail-outs the banks received last year were underlined by the huge job losses announced by Lloyds, which bring the total number of job cuts at the bank since January to more than 7,000.

Scotland took a heavy share of the losses yesterday, with 355 posts expected to be cut north of the Border in the firm's Wholesale and Group Operations division.

Employees in the group's retail arm – trading as the Bank of Scotland north of the Border – are bracing themselves for even greater cutbacks early next year as the giant group moves its attention to meeting its targets of some £1.5 billion in savings.

Senior bank insiders say the cuts so far announced are by no means the end as the bank moves from division to division seeking out the cost savings which have been made possible by the merger.

With the firm's Wholesale and Group Operations section having been streamlined, attention will focus on the bank's core high-street business, as bank chiefs decide which branches to close and which to keep open. One senior source said: "This is far from finished."

Despite 7,000 jobs having already gone, analysts have predicted that as many as 40,000 of the giant banks' 140,000 posts could go.

There are fears Scotland would be disproportion ally hit, as the merger group employs 25,000 people here.

Scottish Liberal Democrat leader Tavish Scott last night called on Lloyds to end the uncertainty and spell out the cuts to come. "The sooner the staff of the Lloyds group know their future, the better. There must be no further delay from Lloyds bosses in explaining exactly how many more jobs are to go across Scotland," he said.

The bank sought to reassure staff yesterday, insisting that compulsory redundancies would be considered only as a last resort. It also pledged that it would not send any more UK jobs overseas.

The rationalisation process in other sections will now continue. Unlike the RBS, Lloyds has decided to go piece by piece through each of its divisions, with an announcement on the retail wing, the biggest section of all, not expected until 2010. The bank said yesterday that the job losses in Scotland will be mitigated by the creation of 40 new Lloyds posts elsewhere.

Mark Fisher, director group operations, said: "By bringing the businesses together, we will be better placed for the future. Regrettably, however, some of our colleagues will be affected by our plans.

We understand that this difficult news will be unsettling and we will be working closely with those colleagues affected."

But unions expressed continuing alarm at the scale of the retrenchment at Lloyds which has taken place since the part-nationalised bank was merged.

Rob MacGregor, national officer at Unite, said: "Unite is astonished that the Lloyds Banking Group is to make a further 2,100 cuts. As a taxpayer-supported organisation, real questions need to be asked as to how far this bank can be allowed to go in this systematic slashing of staff."

He claimed morale at the bank was "truly low as employees are in a permanent state of anxiety as they see their employer announce hundreds of jobs losses every week.

"This Labour government cannot afford to turn the other way as bank workers across the country are losing their jobs."

First Minister Alex Salmond spoke to Lloyds bosses yesterday to gain reassurances that compulsory redundancies will be "a last resort". The bank said that the job losses will be achieved mostly through natural wastage and voluntary redundancies.

Finance Secretary John Swinney described the losses as "extremely disappointing". He said Lloyds was committed to working with the Scottish Government's Finance Sector Jobs Task Force, aimed at retaining laid-off workers in Scotland.

He added: "While we regret the overall reduction in jobs, the commitments made by Lloyds are some cause for reassurance – particularly in the long term."