Banks' £500m bill on small firms
CHANCELLOR Gordon Brown's crackdown on the High Street banks and their rip-off treatment of small firms could cost them more than £500m a year - many times more than expected - it emerged today.
Analysts sharply upped their assessment after Lloyds TSB said it expected a £100m hit once the new rules are in place. John Kirk, of brokers Fox-Pitt Kelton, said: 'This looks surprisingly high. It implies that the cost across the sector will be in excess of £500m.' He had put the total bill at about £100m.
Worst hit would be Royal Bank of Scotland, which has about 30% of the small business market. Kirk said: 'This implies a £200 million a year cost for them.'
The Office of Fair Trading is considering forcing banks to give a better deal to small and medium sized firms (SMEs) after the Competition Commission found they were being overcharged by £750m a year.
Proposals include free banking for SME customers or interest on balances. In March the Chancellor gave Lloyds, Barclays, HSBC and Royal Bank six months to agree measures.
Lloyds, headed by chief executive Peter Ellwood, said the implications had not yet been fully assessed: 'It is likely, however, that the annualised impact on profit before tax will be in the region of a reduction of £100m.'
The figure was contained in an otherwise confident trading statement, which promised half-year profits in line with expectations. Lloyds and HBOS - which also put out a statement today - put City minds at rest on bad debts. Shareholders have been jittery after an Abbey National profits warning two weeks ago. Both said bad debt provisions would be up this year, but largely because of bigger loan books rather than a deterioration in quality.
Lloyds revealed that a revamp in the way it accounts for its staff pension fund would reduce underlying operating profits by £195m this year because of falling investment returns and rising longevity. The scheme has 176,000 members.
Lloyds also admitted that its core Scottish Widows life fund had been much harder hit by falling share prices than the 'smoothed' figures would suggest. The actual hit was £211m more than the £648m reported for 2001 and the slide so far this year was another £111m.
