Questions arise over St. James’s Place future

The to and fro; the will they, won’t they; the back and forth: just what are the intentions of the Lloyds Banking Group (LBG) as majority shareholder in wealth management group St. James’s Place (SJP)? Despite stating again last year that its 60 per cent stake in SJP would not be offloaded, the question just will not go away.

The rumour mill started grinding again last month when LBG came out particularly poorly in early findings of the Independent Commission on Banking’s (ICB) review into the structure of the UK banking market, due in full later this year.

LBG’s new CEO, former Santander UK boss António Horta-Osório, has also been invoked in the latest market tattle. He is rumoured to hold the view that SJP is non-core – a precarious place for any business valued at £1bn (E1.14), let alone one held by a troubled banking group under pressure to do some asset stripping.

Let us weigh up some facts. Even before the ICB report, LBG had been ordered to sell off 600 branches, at least 4.6 per cent of the UK personal current account market and 19.2 per cent of its retail mortgage assets by the European Commission as a condition of the state aid it received in the midst of the financial crisis.

The latest ICB report goes further. It suggests that LBG must sell up to 1,000 branches, 35 per cent of group mortgages (up from 20 per cent) and so on. And if the ICB report gets government backing, LBG’s failure to deliver by 30 November 2013 will see it referred to the competition authorities and facing a forced break-up.

So, Mr Horta-Osório, and his increasingly Santander-flavoured LBG leadership team, may well be looking around for obvious assets to offload to appease the commission.

Indeed, already under Mr Horta-Osório, the bank’s restructuring programme, known as Project Verde (which was put in place following the European Commission ruling) has been accelerated. Cheltenham & Gloucester, the TSB brand and Intelligent Finance have all been earmarked for sale. The former HBOS brands, including SJP, are also under review.

Admittedly, SJP is a market leader in the UK in many ways and could well be a long-term asset to the group. However, on a 60:40 share split, it is somewhat outside the direct control of LBG. More than that, it runs a completely different business model to LBG’s own wealth offering. And, at the end of the day, you cannot ignore the fact that in today’s market it is worth a big pile of cash. Post-RDR, it is hard to say if that will still be the case.

Whichever way you slice it, it is tough to see how LBG will justify holding on to its SJP stake. In fact, at this point in time, the more interesting question to ponder is: who might be interested to buy?

Stephen Wall is a director at wealth management strategy think-tank Scorpio Partnership