UPDATE 2-Lloyds says branch sales may delay competition

* Lloyds hits out ICB’s proposals for more disposals

* ICB says would be unwise to unwind Lloyds/HBOS deal

(Updates with Lloyds reaction)

By Sudip Kar-Gupta

LONDON, April 11 (Reuters) – British bank Lloyds (LLOY.L: Quote, Profile, Research)
said a “prescriptive” proposal for it to sell more branches
could delay its planned quick sale of 600 branches and the
arrival of a new competitor in the market.

Part-nationalised Lloyds was told it may need to sell
hundreds more branches by a powerful UK banking panel, which
said its existing sale plan would not significantly boost

Lloyds was the big loser in far-reaching proposals laid out
by the Independent Commission on Banking (ICB) on Monday, aimed
at reducing risk and improving competition in UK banking.

“This option (more branch sales) appears to be based on
limited evidence and may paradoxically potentially delay a new
competitor coming into the UK market,” said new Lloyds Chief
Executive Antonio Horta-Osorio.

Horta-Osorio has already accelerated an asset sale and
restructuring programme called “Project Verde” and had aimed to
sell the 600 branches by the end of the year.

“Lloyds has spent a lot of money trying to integrate systems
after the merger and it’s been a very costly programme. One of
the worries is that this may start unpicking some of that
integration,” said Ajay Rawal of the financial services group at
Alvarez & Marsal.

The ICB fell short of forcing Lloyds to reverse its
emergency takeover of rival HBOS in 2008, which added 1,100
branches to give Lloyds a network of around 3,000.

Lloyds shares were up 0.1 percent in early afternoon trade,
with some analysts citing concerns over uncertainty over how far
the ICB will push for more asset sales.

“When you look at Lloyds I can see why they wouldn’t be
happy. They were pushed into doing the HBOS deal and the carrot
there was ‘look how rapidly you can build your market share’ and
now that has been taken away from them,” said a top 15 investor
in Lloyds, who declined to be named in line with company rules.

The government owns 41 percent of Lloyds but its rescue of
HBOS came at a cost — the bank was ordered by EU regulators to
sell 600 branches and shrink its balance sheet. [ID:nLDE72R24W]

Lloyds last month hired U.S. banks JPMorgan (JPM.N: Quote, Profile, Research) and
Citigroup (C.N: Quote, Profile, Research) to oversee the branch sale, which would create
Britain’s seventh biggest bank and could be worth over 3 billion
pounds ($4.9 billion), analysts have said.

The HBOS deal gave Lloyds a 30 percent share of the UK
current account market. If there were not more disposals a probe
by competition authorities could be warranted, the ICB said.

The ICB said there was less of a case to make RBS sell off
more assets than it has already been told to.

The credit crisis also led to Britain fully nationalising
Northern Rock. The planned sale of that back to the private
sector could act as a new “challenger” bank, the ICB said.

It said it wouldn’t rule out the possibility that Northern
Rock could combine with the Lloyds branches being sold “in order
to strengthen a new challenger bank.”

NBNK Investments (NBNK.L: Quote, Profile, Research), a new banking start-up, has said
it wants to buy the Lloyds branches. [ID:nLDE68C1FF] Other
suitors could include Virgin Money, National Australia Bank
(NAB.AX: Quote, Profile, Research), Spain’s BBVA (BBVA.MC: Quote, Profile, Research).
($1=.6103 Pound)

(Reporting by Sudip Kar-Gupta and Sinead Cruise, Editing by
Jodie Ginsberg and Sophie Walker)

UPDATE 2-Lloyds says branch sales may delay competition