Lloyds keeps door open for move south

File photograph shows pedestrians walking past a branch of Lloyds Bank in the City London in this file picture.

File photograph shows pedestrians walking past a branch of Lloyds Bank in the City London in this file picture.

Published Sep 19, 2014

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London - Scotland-based Lloyds Banking Group left the door open for a move to London amid uncertainty over the future shape of the United Kingdom despite Scottish voters' rejection of full independence.

British Prime Minister David Cameron pledged to devolve more power to Scotland and other regions after the referendum made it clear that Scotland wants a greater say on spending and taxation, which could complicate the tax affairs of companies with offices across the United Kingdom.

Lloyds, one of five lenders that had warned they could move south in the event of a Scottish vote for independence, responded to Friday's result by issuing a three-sentence statement saying it would keep a “significant presence” in Scotland and that it is focused on supporting lending to home buyers and companies there.

A spokesman for the bank declined to comment further.

Rival Royal Bank of Scotland (RBS), meanwhile, made clear that it had scrapped contingency plans to shift its headquarters to London and National Australia Bank, which owns Clydesdale in Scotland, said it remained fully committed to its operations.

Insurer Standard Life also said it had scrapped plans to move, but the company founded in Edinburgh in 1829 warned that further constitutional change is likely after the referendum.

“We will consider the implications of any changes for our customers and other stakeholders in our business to ensure their interests are represented and protected,” the company said.

The value of Scottish financial companies jumped by about 2 billion pounds (R36 billion) in relief at the rejection of outright independence.

RBS was the top gainer among leading European banking stocks, rising more than 3 percent, with Lloyds trading up 1 percent, TSB 2 percent and Standard Life 1.3 percent.

The cost of insuring RBS bonds against default fell to their lowest level since May 2008, with the value of its five-year credit default swap tightening by 14 basis points to 65 basis points, Markit data showed.

Investors had withdrawn $1 billion from UK share funds in the week before Scotland's poll, according to a BofA Merrill Lynch Global Research Report.

Investors had feared that customers would withdraw their money from Scotland's banks and life insurers if voters backed independence and cast doubt over whether the country could remain in the European Union and keep sterling as its currency.

In Spain, shares in Barcelona-based Caixabank and fellow Catalonian lender Sabadell were outperforming the index because Scotland's rejection of independence is seen as dealing a blow to Catalonia's own secessionist movement.

The rise in Lloyds' shares and the reduced operational risks could mean the government will resume selling its shares in Lloyds soon, analysts said.

The sale of RBS shares, however, is still expected to be several years away.

Britain had to pump 66 billion pounds of taxpayer cash into the pair to rescue them in 2008 and the government still owns 80 percent of RBS and a quarter of Lloyds.

 

TAIL RISK

Regardless of Friday's share price reaction, analysts said that RBS and Lloyds could still move their registered offices to England to ensure that the Bank of England remains their lender of last resort and to remove any future uncertainty about where they are based.

“I think the banks will redomicile in any case ... the tail risk of another referendum is not worth taking,” Bernstein analyst Chirantan Barua said, adding that the political sensitivities mean that banks may not announce any such moves for some time.

Though Lloyds has a landmark headquarters on The Mound, a distinctive dome on the skyline since 1806, it only moved to the city when it acquired TSB in 1995 and is effectively run from London, with a corporate brand less synonymous with Scotland than that of RBS. Therefore, relocation of its registered office may have little impact on jobs or other operations.

Lloyds, which also owns Bank of Scotland, could set out its HQ plans in a strategic review due to be announced late next month or early November.

Canada's lenders set a precedent for a shift in the 1970s, when Bank of Montreal and Royal Bank of Canada both moved their headquarters to Toronto from Montreal after a rise in the movement for Quebec separatism raised uncertainty about their future. Quebec did not split from Canada.

Scottish asset managers Aberdeen Asset Management and Kames Capital, a unit of Dutch insurer Aegon, said they do not expect to have to change how they do business in the face of more devolution.

However, businesses and customers might put off major decisions while they await for clarity.

One of the concerns that businesses may have is the question of whether the United Kingdom will take on a United States-style federal structure, broken down by region, said Ronnie Ludwig, a private wealth accountant and partner with Edinburgh-based Saffery Champness.

“I do not think it will be like that, but we do not have the detail.” - Reuters

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