February 28, 2021

DealBook: Lloyds Bank Plans I.P.O. After Branch Sale Collapses

Branches of Lloyds Bank and the Co-Operative Bank in Birmingham, England.Darren Staples/ReutersBranches of Lloyds Bank and the Co-Operative Bank in Birmingham, England.

LONDON – The Lloyds Banking Group said on Wednesday that it was planning an initial public offering of part of its branch network after a deal fell through to sell the division to a rival British lender, Co-operative Bank.

The failed deal is the latest in a series of setbacks for British banks, which are looking to shed noncore assets and increase capital reserves in response to new regulatory requirements and sluggish growth across Europe.

The European Union had set a November deadline for Lloyds, in which the British government holds a 39 percent stake, to sell about 630 branches as part of the conditions for receiving government support. The bank received a multibillion-dollar bailout during the financial crisis.

Royal Bank of Scotland, which also received taxpayer money in 2008, is also considering an initial offering of some of its branch network after failing to reach a deal to sell them to the Spanish bank Santander. Other British lenders, including Barclays and HSBC, are cutting underperforming divisions in an effort to improve profitability.

While Lloyds had reached an initial agreement last summer to sell the branches for up to $1.1 billion, Co-operative Bank said it had now decided not to buy the network because of sluggish economic growth and mounting regulatory oversight of Britain’s financial services sector.

“We are disappointed that the Co-operative Group is unable to complete this transaction,” the chief executive of Lloyds, António Horta-Osório, said in a statement. “We will now proceed with the option to I.P.O. the business.”

Shares in the Lloyds Banking Group were up slightly in afternoon trading in London.

The British bank is scheduled to report its first-quarter earnings on Tuesday and did not say when the potential I.P.O. might take place. The unit, to be named TSB Bank, has just under five million customers and 7,000 staff members across Britain.

The markets may prove receptive to the new offering. Despite renewed uncertainty about the sovereign debt crisis in Europe, investors have been flooding into equity markets in the hopes of high returns.

A number of new I.P.O.’s, including the $1.9 billion raised by the telecommunications company Telefónica Deutschland late last year, has raised hopes that Europe’s capital markets could be slowly opening for business after years of anemic appetite for new listings.

The decision by Lloyds to tap the public markets instead of selling the branches to Co-operative Bank comes after almost a year of negotiations.

The potential sale would have more than doubled Co-operative Bank’s network, though regulators had raised concerns that its top executives might not have had enough expertise to manage the expanded business.

The potential transaction “offered a significant opportunity to the Co-operative,” the firm’s chief executive, Peter Marks, said in a statement. The deal, however, “would not currently deliver a suitable return for our members within a reasonable time frame and with an acceptable level of risk.”

Article source: http://dealbook.nytimes.com/2013/04/24/lloyds-plans-i-p-o-after-branch-sale-collapses/?partner=rss&emc=rss

DealBook: British Proposal to Rein In Banks Is Faulted

Prime Minister David Cameron sought to rein in pay at the bank.Pool photo by Stefan RousseauPrime Minister David Cameron.

8:07 a.m. | Updated

Proposed legislation to protect Britain’s financial services sector from future crises does not go far enough and may fail to stop banks from engaging in risky trading, British lawmakers warned in a report on Monday.

The warning comes as Parliament debates the new laws, which outline how firms could be split up if they do not separate their investment banking units from their retail banking operations.

The creation of a so-called ring fence between the banks’ businesses is an attempt to shield consumers from an implosion of trading activity and other risky behavior that led to several big banks being bailed out by British taxpayers during the financial crisis.

In the wake of the multibillion-pound handouts to British banks and a series of scandals like the manipulation of benchmark interest rates that have rocked London’s position as a global financial center, Prime Minster David Cameron created a parliamentary commission last year to review standards in the British banking industry.

In the report published on Monday, British politicians said the government had failed to adopt several proposals from the commission intended to protect local firms.

The recommendations include a regular independent review to check that banks are maintaining a separation between their risky trading activity and retail deposits.

The commission also suggested that firms’ overall leverage ratio, which measures the amount of risk banks undertake, should be higher than current international standards, and that local regulators should have greater powers to separate firms if they fail to maintain a division between the different business units.

“The government rejected a number of important recommendations,” Andrew Tyrie, a Conservative Party politician who is chairman of the parliamentary commission on banking standards, said in a statement. “There remains much more work to be done to improve the bill.”

George Osborne, Britain's chancellor of the Exchequer.Vincent Kessler/ReutersGeorge Osborne, Britain’s chancellor of the Exchequer.

The report is the second time that the commission has officially weighed in on the British government’s attempts to improve how banks are regulated.

Last year, local politicians also demanded that British authorities should have the explicit power to split up banks completely.

In response to the proposal, George Osborne, the chancellor of the Exchequer, agreed last month to allow British regulators to forcibly separate firms that did not maintain a clear division between their retail and investment banking units.

As part of its lengthy investigation into British banking standards, local lawmakers have called many senior executives, including the chief executives of Britain’s major financial institutions, to give evidence.

In often tense testimony, bankers have been questioned about wrongdoing connected with the investigation into the manipulation of global benchmark rates like the London interbank offered rate, or Libor.

The Royal Bank of Scotland and Barclays already have agreed to large fines with American and British regulators over their roles in the scandal. Other British firms and international banks like Citigroup remain under investigation.

As part of efforts to revamp the country’s banking industry, British politicians are pushing through legislation that is aimed at protecting local consumers from potential future financial crises.

The new laws, according to the British parliamentary commission report published on Monday, “represent not the beginning of the end for the necessary reform process, but the end of the beginning.”

Article source: http://dealbook.nytimes.com/2013/03/10/british-proposal-to-rein-in-banks-is-faulted/?partner=rss&emc=rss

British Banks May Be Undercapitalized, Bank of England Governor Warns

The central bank said in a report that current capital ratios at major British banks — a measure of their ability to withstand financial shocks — were probably insufficient because possible future losses and costs of bad loans or other past business decisions might be bigger than expected.

The Bank of England also said that banks should be more transparent in communicating their credit buffers and look more prudently at risks to their financial soundness.

“We need to ensure that reported capital ratios do in fact provide an accurate picture of banks’ health,” Mervyn A. King, governor of the Bank of England, said during a press briefing as he presented the report. “At present there are good reasons to think that they do not.”

Capital ratios at the four biggest British banks — Barclays, Royal Bank of Scotland, Lloyds Banking Group and HSBC — could be overstated by £5 billion to £35 billion, or $8 billion to $56 billion, according to a hypothetical example in the report. That means that the banks would, under certain situations that the central bank did not disclose, need to raise an additional £5 billion to £35 billion.

The central bank declined to give a more concrete figure on how much it thought the banks should raise. Mr. King, whose term as governor ends next summer, has previously suggested that banks should cut bonuses and use the money to expand capital buffers. He has repeatedly warned during his tenure that banks’ capital cushions are too thin.

Mr. King said Thursday that banks would not have to turn to taxpayers for more capital. Initiatives by the Treasury and the Bank of England, including cheaper financing for banks if they commit to increased lending, have been helping banks to access funds.

The Bank of England called on the Financial Services Authority, Britain’s financial regulator, to talk to the banks and encourage a more realistic valuation of their assets, future costs and risks.

The F.S.A. should sit down with the banks and say, “Look, I think you should look more prudently” at the credit levels, Mr. King said.

He did not suggest that banks were dishonest in booking provisions or taking into account future possible losses. But he said that reporting standards did not require them to be more vigilant and therefore many banks were unwilling to be more prudent about possible future losses.

As part of its new regulatory powers, which take full effect next year, the Bank of England could be stricter with how banks report their capital levels. And it could require them to be more conservative in assessing future risks. But so far, there has been little consensus on exactly how much capital is needed or how banks would be allowed to raise it.

Barclays and Royal Bank of Scotland did not comment on the report.

The new regulatory regime in Britain, which includes the Bank of England’s financial policy committee, is to be in place when the bank’s next governor takes over in July. The government this week named Mark J. Carney, the head of the Canadian central bank, to take over from Mr. King.

Mr. King said Thursday that the additional capital was needed because even though the sentiment in financial markets had “improved a little,” global growth remained weak and “significant adjustments” on debt in the euro zone were still expected.

Lloyds, Barclays and R.B.S. have had to recently increase the amount they set aside to compensate customers who were inappropriately sold some payment insurance, raising concerns among investors that such provisions could rise further.

It is also not yet clear how much banks may have to pay in penalties as a result of the continuing investigations into the rigging of the London interbank offered rate, or Libor.

Higher capital levels should help banks to regain investor confidence and, as a result, make it easier and less expensive for them to raise money in the financial markets, Mr. King said.

Article source: http://www.nytimes.com/2012/11/30/business/global/british-banks-may-be-undercapitalized-bank-of-england-governor-warns.html?partner=rss&emc=rss

DealBook: From Spain to Britain, Bank Earnings Slip in Europe

Three of the four major European banks that reported first-quarter earnings on Thursday performed weaker than had been expected as a result of recent market turmoil and the slow economic recovery in countries including Britain and Spain.

Lloyds Banking Group, the partially nationalized British bank, posted a net loss of £2.43 billion ($4 billion) for the period, the result of a £3.2 billion charge for potential compensation related to a court case involving insurance policies sold to bank customers. During the period a year earlier, Lloyds had posted a profit of £204 million.

Lloyds also blamed “continued economic and regulatory uncertainty” and said “sentiment and economic performance is being affected by concerns over austerity measures and cost inflation, and by global factors including instability in the Middle East and North Africa, and natural disasters such as in Japan and New Zealand.”

The bank said it had been focusing on further reducing its risky assets, and that it had delivered a “satisfactory trading performance” given the backdrop. Its core Tier 1 ratio, a measure of financial strength, stood at 10 percent, down from 10.2 percent in the fourth quarter.

The provision follows a British court decision last month that barred lenders from appealing a decision requiring them to compensate consumers for selling unnecessary loan insurance policies, which typically cover sickness or unemployment, and being told it was compulsory when it was not. Customers also were regularly not told the full details of the policies.

Other British banks like Barclays and Royal Bank of Scotland are also expected to make related payments, and the Financial Services Authority has estimated total claims at £4.5 billion.

At Lloyds, provisions related to the Irish economy, which is being supported by the International Monetary Fund and Dublin’s European partners, also contributed to the loss.

“Lloyds has not traditionally been able to benefit from the international diversification of some of its rivals and where it has, such as in Ireland, it has been forced to make further write-downs,” said Richard J. Hunter, head of British equities at Hargreaves Lansdown in London.

The British government holds 41 percent of Lloyds, acquired during the financial crisis. It also retains 84 percent of R.B.S. The government is not expected to sell any of its stakes until September at the earliest.

The scale of the provisions was unexpected and sent the company’s share price down 8.5 percent, to 53.09 pence. Other London-listed banks also suffered.

BBVA

One of the largest Spanish banks, BBVA, said its first-quarter net income dropped 7.3 percent, to 1.15 billion euros ($1.7 billion) as a weak business climate in Spain offset improvements in Mexico. Despite the profit decline, the lender said the first-quarter performance was its best in the last three quarters.

“The resilience of our earnings is based on an adequate diversification and on a successful business model,” said Ángel Cano, BBVA’s president and chief operating office. “Emerging markets will continue to play a growing role in the group’s earnings.”

The bank said bad loans, as a proportion of the bank’s overall lending, had dipped to 4.1 from 4.3 percent in the period a year earlier, adding that it was the fifth quarter in a row in which the nonperforming assets ratio remained in check.

An aggregate index of Spanish real estate prices, compiled by Barclays Capital, showed home prices down 0.8 percent in April from a month earlier, and 4.7 percent lower from the period a year earlier. That represented the sharpest pace of annual decrease since March 2010.

“We expect a further decline of potentially around 20 percent from here,” the Barclays analysts Julian Callow and Antonio Garcia Pascual said.

Société Générale

Société Générale, one of the largest banks in France, said its net profit for the quarter was 916 million euros, down almost 14 percent from the period a year earlier. It booked a charge of 239 million euros on its own debt and saw business disrupted with the political turmoil in the Arab world.

Own-debt charges have been common this earnings season as banks, which marked down their liabilities as their debt declined in value during the crisis, have had to mark that debt back up as their creditworthiness recovers.

The bank said net income at its international operations had fallen 61 percent, to 44 million euros, as performance was affected by “the economic consequences of the political transition situations experienced in Egypt, Tunisia” and Ivory Coast.

Independent of the protests that swept North Africa this year, Ivory Coast was riven by civil strife between the forces of former President Laurent Gbagbo, now ousted, and a newly elected government. Société Générale and other international banks closed their operations in the country in February.

Shares in BNP Paribas, another large French bank, rose 1.1 percent in Paris. On Wednesday it said its first-quarter net income rose to 2.62 billion euros, beating the estimate of analysts.

ING

ING, the Dutch financial services company bailed out during the crisis, was the one bright spot in the earnings reported on Thursday, posting profit of 1.38 billion euros for the quarter, up 12.3 percent from the period a year earlier.

The bank said it had drawn more deposits, lowered risk provisions, cut costs and kept a “healthy interest margin.” Its insurance benefited from higher fees, more sales and returns on its investments, it said.

The bank reiterated its intention to repay 2 billion euros of state aid next week, a transaction that will cost it 3 billion euros because of a 50 percent repurchase premium. ING is also preparing to split its banking and insurance businesses, which was a condition of receiving the government bailout.

“The restructuring of the group is on track,” Jan Hommen, chief executive of the bank, said in the statement. “We are laying the groundwork this year for two I.P.O.’s of our U.S. and European and Asian insurance businesses.”

Article source: http://dealbook.nytimes.com/2011/05/05/from-spain-to-u-k-bank-earnings-slip-in-europe/?partner=rss&emc=rss