[ 2011-04-09 ]

Barclays has most to lose from banking commission
Barclays is the British bank at greatest risk from
the recommendations of the Independent Commission
on Banking (ICB), according to a poll of
analysts.

London (UK) - 08 Apr 2011 – The Telegraph - Six
out of 11 analysts polled by Reuters said that
Barclays stands to be worst affected by potential
ICB proposals that could range from higher capital
requirements to the more radical division of
retail and investment banking.

Morgan Stanley found that 58pc of investors
believe that Barclays shares will be the hardest
hit of all the UK banks.

Analysts at Evolution said that Barclays Capital
could incur at least £1bn of extra costs. "If the
ICB recommends a high degree a separation, the
market will react negatively given the costs
involved. An increase in funding cost seems
inevitable," the researchers said in a note.

"As an example, Barclays Capital has around
£100bn of wholesale debt - if the cost of funding
for BarCap was to increase by say 100 basis points
due to this, the impact could be £1bn after tax,"
they added.

Lloyds Banking Group stands to lose the most if
the ICB attempts to reduce the dominance of the
Big Four banks in the retail market.


Although few expect the commission to demand the
reversal of the Lloyds-HBOS merger, the group,
which is biggest bank on the high street because
of the combination, could be forced to sell some
of its branches.

Morgan Stanley analysts have said the sale of
1,000 branches could cost Lloyds as much as 17pc
of pre-tax profits.

In a note analysts at Deutsche Bank said: "We
expect a bold document with disposals and
subsidiarisation remaining on the table."

The ICB is expected to propose a degree of
"subsidiarisation" - a change in structure to
limit the liabilities of the UK Government to
losses incurred overseas.

John Cridland, director-general of the CBI, warned
against forcing break-ups as it would "detrimental
to business." However he added: "But ring-fencing
critical operational services such as payment
systems could help ensure they can continue to
operate during a crisis."

Morgan Stanley said "the harshest outcome" would
be "functional subsidiarisation" which would
require the banks to provide separate liquidity,
funding and capital for each jurisdiction.


Q&A: What is the Independent Commission on
Banking?
The Telegraph's quick guide to the ICB and how its
review on Monday could change the face of British
banking, affecting everything from breaking up the
banks to the amount you earn in interest.

Q: What is the ICB?
A: George Osborne set-up the ICB just a month
after taking office and asked it to consider
reforms to the banking sector to promote financial
stability and competition. Its recommendations
will be handed directly to the Chancellor in
September, by its chairman Sir John Vickers
following the publication of a final report.

Q: Why should I care?
A: You might not at the moment, but the bosses of
the bank you deposit your money with certainly do.
The Commission could completely overhaul the
British banking industry, affecting everything
from the amount you earn in interest to the price
you pay for basic services.

Q: What can it do?
A: After 12 months of study the Commission will
not want to disappoint and banks are gearing up
for major changes in the way they operate. Banks
like Barclays could be forced to split off their
investment banks, while Lloyds might be pushed to
sell off the HBOS business.

Q: How much will it cost?
A: Some of the ideas being looked at by the ICB
could add an extra £20bn a year to banks' funding
costs, which would mean higher borrowing costs for
customers and lower dividend payments for
shareholders. There is also the possibility that
some banks might just up sticks and move to a
less-regulated market.

Q: Is there an upside?
A: It is hoped that the recommendations of the ICB
will create a banking system that is safer and
that is unable take on unsustainable amounts of
risk in the way it did before the last crisis.

Source - The Telegraph

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