EU ruling threatens Lloyds’ branches.

EU ruling threatens Lloyds’ branches. September 25 2009 23:30. Lloyds, the part-nationalised high street banking group, faces the loss of large sections of its business and a sixth of its market share in Britain as part of a state aid ruling being drawn up by Brussels, the Financial Times has learnt. Neelie Kroes, Europe’s competition chief, will insist that the enlarged Lloyds Banking Group, created by its rescue of HBOS at the height of the financial crisis, sell a substantial part of its retail and corporate operations because of the huge taxpayer subsidy it received. Brussels officials have rejected reports that Lloyds would have to sell the mortgage bank Halifax to comply with the Commission’s ruling on state aid, which could come within weeks. However, officials in London and Brussels say that Lloyds will have to go further than shed its Cheltenham & Gloucester subsidiary, which has 164 branches. “That is nowhere near enough – they would have to do something else,” said one. Brussels and Treasury officials have raised the prospect of forced divestments, through the sale of businesses, branches or loan books, which would reduce the bank’s market share by about 5 percentage points. Lloyds may have to close or sell a number of its 1,000 Halifax branches. A final decision has yet to be taken. Lloyds, which is 43.5 per cent owned by the taxpayer, has a 31 per cent share of current accounts and 30 per cent of all UK mortgages. It has 22 per cent of lending to small businesses. The Treasury hopes the disposal of Lloyds assets will encourage new entrants into banking. RBS, 70 per cent owned by the taxpayer, will be told to make disposals on a similar scale. Between them, Lloyds and RBS have received more than £40bn in direct government assistance. Under EU state aid rules, beneficiaries of government bail-outs usually have to restructure their operations to compensate for the competitive advantage they have enjoyed. Ms Kroes, who wants to reach a final decision on Lloyds and RBS before the official end of her five-year term on October 31, is growing impatient with the pace of the state aid talks. The Treasury has agreed in principle to insure £260bn of Lloyds’ toxic assets. The bank is hoping to raise cash from investors to minimise its participation in that scheme. It has been warming up investors for a rights issue and could also raise £8bn by converting preference shares into equity. It could also sell its life assurance operations.

Oleg Deripaska in $30bn Hong Kong flotation. September 27, 2009. DIRECTORS of Rusal, the aluminium giant controlled by Russian oligarch Oleg Deripaska, are this week expected to approve a flotation valuing it at $30 billion (£19 billion). The deal will be one of the biggest floats of the year and, in a snub to the London Stock Exchange, will take place in Hong Kong. Rusal, the world’s biggest maker of aluminium, plans to list 10% of its shares on the Asian market and advisers at Credit Suisse and Goldman Sachs are ready to file a prospectus before the end of the week if the board gives the green light.While most of the global mining and metals groups are listed in London, Rusal is understood to have opted for Hong Kong partly because of a lawsuit in London in which Mikhail Chernoy, a former associate of Deripaska, is claiming more than $4 billion-worth of shares. The Asian bourse has also seen huge demand from Chinese investors and institutions for metals stocks. The float is conditional on the resolution of long-running talks to restructure Rusal’s $16 billion of debt. Its banks are understood to have agreed in principle to a deal that will spread repayments over the next four years and give them rights to take up to 5% of the equity if it hits performance and repayment targets. Mikhail Prokhorov, Russia’s richest man, who owns 18% of Rusal and has made loans to the group, has agreed a debt-for-equity swap that will lift his stake to about 23%. That would make him the second-largest shareholder after Deripaska, who holds 54%. Viktor Vekselberg, another oligarch with an 18% stake, will be made chairman. The company is, meanwhile, holding talks with several sovereign wealth funds — including China Investment Corporation and Singapore’s Temasek — in the hopes of signing them up as cornerstone investors in the float. Credit Suisse and Goldman are the joint global co-ordinators and bookrunners for the listing. BNP Paribas, Rusal’s single largest creditor, and Bank of China International, are the other two bookrunners. Under the proposed timeline the prospectus will be filed this week. Formal marketing would start in November ahead of a projected pricing of the shares and listing in December. The timing is critical. As part of a three-way merger in 2006 with rival Sual and the aluminium assets owned by Glencore, the Swiss commodities trader, Deripaska pledged to list the combined group by December 31. If it does not go ahead, Deripaska has to buy their shares at a price based on a valuation of the company at $30 billion to $35 billion.The recession and collapse in the aluminium price hit Rusal and Deripaska’s personal wealth hard and he is not thought to have the money to buy the stock. Unicredit, the Italian banking giant, is plotting a €4 billion (£3.7 billion) share issue as part of its efforts to avoid taking state aid. Credit Suisse, Goldman Sachs, UBS, Bank of America Merrill Lynch and Italy’s Mediobanca have been hired to underwrite the potential fundraising — which will be put to a board vote this week.