Lloyds Banking Group looking for softer treatment by regulator on ringfencing

Lloyds Banking Group Plc is seeking for gentler treatment from the regulator on new “ringfencing” rules due to the fear that otherwise it will be forced to shut down its activities in the field of investment banking.

Lloyds Banking Group Plc is currently negotiating with the Prudential Regulation Authority over the detailed requirements of the new administration, which is expected to come into place late in the decade following the passage of the Banking Reform Act in December. The banking group is concerned that the complexity and cost of administrating a group that is subject to the full power of ringfencing requirements may disturb the balance of the benefits, taking into account the modest size of its investment bank.

People familiar with the plans of Lloyds Banking Group Plc shared that one of the options for the group is to abandon investment banking altogether and start operating exclusively as a retail business. According to people with knowledge of the matter, Lloyds Banking Group Plc is currently trying to persuade the regulator to give it a permission to operate a “lower” ringfence, which is expected to leave the two businesses not so strongly separated. They reported that the banks senior executive officers were feeling worried about the cost of arranging entirely separate boards, IT systems and risk and finance functions for the activities, which are not included in the ringfence.

The regulator is a part of the Bank of England. It is now expected to demand that banks have separate boards under the new administration for the ringfenced and investment banking divisions. There is some flexibility on governance rules allowed, especially in cases when the ringfenced bank represents the majority of the groups business. However, the details are not yet disclosed.

Some people, who are familiar with the banks initial discussions with the PRA revealed that the negotiations were having a great progress and the regulator “understood” its situation. One of them said for the Financial Times: “We hope the regulator will be pragmatic.”

Lloyds Banking Group Plc rose by 0.52% by 8:13 GMT to trade at GBX 80.87, marking a one-year change of +47.57% up. According to Financial Times, the 26 analysts offering 12-month price targets for Lloyds Banking Group Plc have a median target of GBX 85.00, with a high estimate of GBX 110.00 and a low estimate of GBX 50.00. The median estimate represents a 5.66% increase from the last close of 80.45.