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Rescued U.k. Banks May Need To Sell Units

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Rescued U.K. Banks May Need to Sell Units, Kroes Says

U.K. banks that received government bailouts may have to sell branches or units to win European Union approval for restructuring plans, the bloc’s top competition official said.

“We will be working with the U.K. government to get U.K. banks off aid as quickly possible and onto business models which push them to focus on what they do best,†European Competition Commissioner Neelie Kroes said at a conference in London today. “It may be that some banks will be required to divest parts of their businesses to offset the massive benefits they received in being granted aid.â€

Kroes, who didn’t mention any specific banks, said the European Commission will make decisions “on the facts of each case.†She said units won’t have to be closed “just transferred to new owners.â€

The U.K. has committed as much as 1.4 trillion pounds ($2.31 trillion) to bolster the nation’s banking system through direct investments, asset insurance and underwriting loans. The government nationalized Northern Rock Plc after a run on its deposits in September 2007, seized Bradford & Bingley Plc and took controlling stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.

Restructuring plans for Northern Rock, Dexia SA and Bayern LB are under review by the commission. There are no strict deadlines for commission decisions.

Divide Into Two

Northern Rock said it has proposed to the commission that it divide into two, with customer deposits, branches and any new loans to homeowners put into one unit.

Existing mortgages, including those from the Granite securitization vehicle, together with covered bonds, will be run by a second unit, the Newcastle, England-based mortgage lender said in a statement today.

The U.K. government hasn’t yet detailed plans to insure 585 billion pounds of risky assets owned by RBS and Lloyds. In May, Lloyds said that to take part in the plan it may have to “undertake a restructuring which may be materially adverse to the interests of the group.†The U.K. government agreed to waive competition rules to enable Lloyds to buy HBOS Plc, Britain’s biggest mortgage lender, in January.

The Brussels-based commission last month forced Commerzbank AG to sell assets to win approval for a German rescue. Kroes said the decision in Germany ensured the viability of both the bank and the financial system.

The regulator earlier today approved Ireland’s emergency 4 billion-euro ($5.6 billion) recapitalization of Anglo Irish Bank Corp. The rescue aid does not go beyond what is necessary to keep the bank afloat until an in-depth restructuring plan can be established, the commission said in a statement.

Of course the boardroom knew the risks involved with such lax lending and monetization of debt, but maybe there was a method to the madness.

The question is though, who gets stuck with the turkeys? Let me guess...

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