Blackfriar: Pain for Lloyds but it could be gain for the smaller players

LLOYDS Banking Group must be wondering why it ever bothered.

When then Prime Minister Gordon Brown met the bank’s chairman Sir Victor Blank at a cocktail party in September 2008 and suggested Lloyds take ailing Halifax Bank of Scotland under its wing, it was too good an opportunity to pass up.

The plan was to create a banking behemoth – adding 1,100 HBOS branches and 1,900 Lloyds branches to create a 3,000-strong branch network and a giant share of the nation’s savings and mortgage borrowing.

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But the blind eye the Government turned to competition concerns ended up being a temporary measure.

Now the knives are back out for Lloyds.

The Independent Commission on Banking spared Lloyds the ultimate sanction of recommending it unwind its merger with HBOS, but its remedy may end up being only slightly less painful.

With 600 branches already under the block because of strict European rules on taking state aid, Lloyds thought it had done enough to convince regulators its slight retreat from the high street was sufficient.

Instead, the ICB wants the retail banking giant to “substantially enhance” its branch sales.

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Some believe it will have to flog 1,000 branches, making a net gain of only 100 branches from the HBOS deal.

With an intrusive 41 per cent shareholder in the form of Her Majesty’s Government, Lloyds is right to ask, “Was it worth it after all?”

New chief executive Antonio Horta-Osorio, who spurned the chance to float Santander’s UK operations to take the Lloyds job, was furious on Monday. “This option appears to be based on limited evidence and may paradoxically potentially delay a new competitor coming into the UK market,” he said in a terse statement.

But while this is tough medicine for Lloyds to swallow, Blackfriar agrees it is vital if UK retail banking is to become more competitive.

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Assuming Lloyds were to sell only the 600 branches, it would still have 25 per cent of UK current accounts, 19 per cent of mortgages and 18 per cent of savings accounts, the ICB estimates.

In Blackfriar’s view, that’s more clout than should be in one group’s hands.

The remedy may be painful for Lloyds, but for the building society sector and smaller players like Yorkshire Bank, it’s a welcome bit of news.

Yesterday Cameron Clyne, chief executive of Yorkshire Bank’s parent National Australia Bank, gave the clearest sign yet the group is limbering up to buy some of the Lloyds branches, after missing out in the Royal Bank of Scotland auction of 318 branches. “Our number one priority is and has always been to grow the business organically but in this climate it is also only natural that we would look at other options available to us,” he said.

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Yorkshire and its sister bank Clydesdale, with their three per cent market share and largely intact reputation, is one of the very “challenger” brands the ICB wants to see more of.

Lloyds’ loss may be Yorkshire Bank’s gain.

n Upmarket sausage company Cranswick had some good news for the market this week with the announcement that sausage sales rose over 16 per cent during the recent sunny spell.

The Hull-based company attributed this to consumers breaking out their BBQs during the unusually warm weather. It said the sales increase relates specifically to top quality, British sausage ranges.

This suggests that despite current pressures around the cost of living, more consumers are opting for quality over price when it comes to buying their BBQ bangers.

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The news comes at a time when the market has a downer on Cranswick after the group warned earlier this month that the current year may be more demanding than usual.

The group said it is wary about the difficulties facing consumers and the dynamics of the competitive UK market this year.

A number of food retailers have warned that the consumer environment is about to get a lot tougher as Government spending cuts, public sector job losses, higher petrol prices and soaring food raw materials prices take effect. But Cranswick is well-placed to ride the downturn as it is heavily reliant on pork products, which are cheaper than chicken, lamb and beef, as the latest BBQ figures show.

Cranswick also has the capacity to produce cheaper products if the market demands it.

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While best known for its gourmet sausages, it also supplies the budget end of the market and it can ramp up production at the cheaper end of the spectrum if that’s where consumer demand lies.

Cranswick has a strong range of products, an experienced management team and a robust financial position.

It is well placed to outride the downturn and shareholders should keep faith.