Letter From Lord King of Lothbury to the Chairman

8/12/2019 Letter From Lord King of Lothbury to the Chairman

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LordKingo fLothbury

12March 2014

AndrewTyrieMPChairmanof the Treasury CommitteeHouseof Commons, Committee Office7MillbankLondonSW1P3JA

DearAndrew,

Iam writing in response to your letter of5February regarding Lord Levene's evidence to the TreasuryCommitteeon21January.AsLord Levenestated,Imet with him on two occasions: 28 May and 5 July. A Private Secretary attendedandtook aformalnote ofbothmeetings. These notes are attached.Althoughthe Bank has no written record that Lord Levene requested the meeting on 28Mayand diaryrecordsshow that the meeting was confirmed on 23 May,Idid not instigate that meeting. It is clear from therecordof the meeting, and from Lord Levene's follow-up email to me (alsoattached) that the purpose of themeetingwas for him to update me on - and not for me to relay concerns to him about - NBNrCsbid. (Notethatthe reference in Lord Levene's email to a meeting on the previous Friday is incorrect; our meeting hadinfact taken place on Monday 28 May).

Thefirst meeting, on 28 May, took place after the Verde bidding process had been delayed. Lord Leveneupdatedme on the position. The record shows thatIsaidIwould raise myconcernsabout the slowprogressof the transaction with the Chancellor. At the time i was frustrated by the delays to the processbecausethe Verde transaction promised to inject more competition into the banking sector, regardless ofwhothe successful bidderwas,and to enable Lloyds Banking Group (LBG) tomdVequickly to implement itsnewstrategy. Iraised those concerns with the Chancellor at a regular bilateral meeting in early June. I didsobecauseHMTreasury was a major shareholderinLBG,sothe Governmenthadsome ability to influencetheoutcome, and because I knew the Chancellor shared my desire to seegreatercompetition in the bankingsystem. Lord Levene told me he had already spoken to theChancellorandwould do so again. His follow-upemail records that he did then express frustration to the Chancellor at the slow pace of the biddingprocess.

Thesecond meeting with Lord Levene, on 5 July, was also attended by Sir David Walker. As the Bankrecordstates, this meeting was held at theirInitiative. The purpose ofthemeeting seemed to be forthemtoexpresstheir frustration at the failure of NBNK to secure the Verde branches. They were of the view that theGovernmenthadpressured LBG into accepting the Co-operative Bankbid. Iwas concerned to knowwhetherthey had evidence of that They told me they did not

1did not meet during the bidding process with any other potential bidders.

Bankof England, Threadneedle Street,London ECZR BAHT+44(0)2076014444 www.bankofjengland.co.uk


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Finally,f would note that, althoughitseemedto me that the Governmentwishedto ensure that, ifjt werepossible, a plausible bid from the Co-operative Bank was able to be considered alongside other bids, thatwasa far cry from any improper conduct in the bidding process. HadIreceived evidence of improperbehaviourIwould have raised thatwiththe regulator, the Governmentand,if necessary, Parliament thmughtheTreasury Committee. Given that,Iam particularly concernedthattheexchange between AndreaLeadsomMP and Lord Levene at the evidence session on21January (Q1710) should not be allowed tostanduncorrected.

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Withbest wishes

LordKing of Lothbury

Asnotedon thetranscriptoftheTSCsessionon21January2014,and availableonhttpV/www pubKcations p^Hamentiik/pa/cm2Q1314/cm

BankofEngland,ThreadneedleStreet,LondonEC2R8AHT+44(0)2076014444www.banbfengland.co.uk


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From:

Sent: 29 May 2012 09:47

To:

Subject: The Governor's meeting with Lord Levene 28/05

TheGovernor met with Lord Levene to discuss NBNK. Lord Levene said that NBNK's bid for the 632 branches Uoyds

BankingGroup had been instructed tosellwas still ongoing. NBNK had "done everything possible" to speed it up,butit had been very slow.

Atthe initial time ofbiddingin late2011 Lord Levene thought that NBNK had been theonlybidder. ButUoydsappearedto have stalled the process and then Co-Op Bank had come in aswell. Lord Levene said that Co-op Bank

hadnot been in a good position relative to NBNK: they had no FSA approval and did not have the money ready to

go. Despite this they appeared to be the favoured bidders.

LordLevenesaidthat more recently Lloyds had been prepared to start again with the process. Win Bischoff hadrecentlycome to see LordLevene. NBNK had also had a meeting with the FSA the previousFriday 25 May, whichhadbeen very positive. The FSAwould.Lord Levene was confident, write to Lloyds saying "so farsogood" forNBNK. Lord Levene said this made him more hopeful. But he was also wary thath isshareholders could becomeimpatient- Lord Levene noted that, even once the networkwasacquired, it would be 18 months before NBNK

wouldhavefullcontrol of the operation. It was the attraction ofacquiringagood branch network that hadmaintainedNBNK's interest despite the slow progress.

TheGovernor noted that hewas,in general, very supportive of introducing more competition into the banking

sector.The delay in Lloyds' offloading of branches regardlessof to whom they were sold) was nothelpingtoachievethat broad objective. The Governor wouid raise the issue with the Chancellor. Lord Levene noted that he

hadalready spoken to the Chancellor, who had directed him to Mark Hoban and Tom Scholar, but he would speak to

theChancellor again.


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From:Peter Levene

Sent:Wednesday, May30 2012 12:13 PMTo:Subject:ForTheGovernor please

ThisemailhasreachedtheBankvia theInternetor an externalnetwork* * * * * * * * * * * * * * * * * * * * * * * * *

DearGovernor

Thankyou forseeingme on Friday, whenIwas able to give you an update on our discussions with LBG regarding

theirVerdebranchsale.Ithought you might find i t useful to have theattached,which sets out the timetable of the discussions With Lloydsfromthe outset.

AsImentioned,Iduly met with The Chancellor this morning (on another matter) and took the opportunity to tellhim of our frustration at the very slow progress in respect of Verde. Iwould also mention that we have now receivedfromtheFSA,following our submissions tothem,a letter which states, inter alia ..theprocess of engagement withNBNKis satisfactory from our point of viewatthis stage." We regard that as a good and positive indication.Kindregards

Peter

LORDPETERLEVENE

Chairman

NBNKInvestmentspic


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TIMELINEasat30.5.2012NBNKInvestmentspic (NBNK) re Verde branch sale by Lloyds Banking Group (LBG)

Date Detail

20111 March NewLBGCEOsignals acceleration of Verde branchsale11 June VerdedisposalProcessLetter sent out. Bidsto be submitted by11 July.11July NBNKsubmits round 1 bid. Co-op also reported to have bid.23July Co-opCEO resigns.4August Round2ProcessLetterreceived. Bidsubmissiondate 28 September.28September NBNKsubmits round 2 bid. No bidfromCo-op.3 November NBNKsubmits revisedofferon a smaller Verde package.

4 November Co-op statement. Intentionto submit a round 2 bid.

12December NBNKmakes updatedofferto complywithfurther revisions.14December LBGannounces Co-op wins auction for Verde.2012

27January Meeting withLBG. Feedback on bid. Confirmation of Co-op exclusivity to end March.

28March NBNKsubmits unsolicited newoffer.27April 1. LBGannounces end of Co-op exclusivity.

2. LBGresponseto renewed NBNKoffer. Request for further information.

14May Confirmationofofferby NBNK.


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From:

Sent: 06 July201210:04To:

Subject: Meeting with Lord Levene and Sir David Walker 05/07/12LordLevene and Sir DavidWalker,who had requested to come and speak with the Governor briefly, described theirfrustrationat Co-Op securing the 624 Lloyds branches (the Verde business). Levene said that the frustration

reflectedwhat they sawasGovernment pressure onLloydsto accept the Co-Op bid becauseitWasfrom amutual. Levene and Walkeralsostressed that they felt the FSA had acted impartially throughout the biddingprocess.

Levenesaid that NBNK's shareholders were questioningwhy30mi!lion had been spentonwhat wasawildgoosechase. And they would want to know what, i f anything could be done about it. LeVene said he would be grateful for

anyadvice the Governorcould offer.

TheGovernoraskedwhether they were considering legal proceedings. NBNK would ofcourseneed evidence of

misconductinthe biddingprocess- hearsaywouidnot be enough. Levene said that was right: he had no evidencejustvery strong suspicions.And,quite apart from that, he had no intention of bringing legal proceedings.

Levenenoted that, aheadofthe Verde bidding processopening,the European Commission had said that the biddingmustbecarriedout with a fair competition between existing banks and new banks. An appeal to the EuropeanCommissionwas anotheroption. Levene said that NBNK would go into voluntary insolvency, and so, even if the

EuropeanCommission sided with NBNK and asked forthe biding to be reopened, NBNK would not be inaposition to

takepart.

TheGovernoraskedwhether there were any other branch networks that interested NBNK. Levene said no, they

hadthought about others outno other available optionsofferedwhat they wanted.

l

Letter From Lord King of Lothbury to the Chairman

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