Capital proposal doesn't go far enough to make LBG disposal attractive
The impact of having such a mismatch between the loans and the deposits is that the increased cost base to service the bridging loan will put the new bank at a significant disadvantage to the incumbants, so the aim of creating a new challenger to the Big 5 banks may well not be achieved.
To overcome some of this challenge Lloyds Banking Group could look at persuading the EU that either the timescales of the transfer of the loans be extended so that initially there is more balance between loans and deposits and also a slower ramp up of the need for wholesale funding, which could result in the cost of that funding being lower, or argue that in the interests of making the new bank more competitive less loans should be transferred. The danger with making these proposals to the EU could be that it would backfire on Lloyds Banking Group and the EU could insist that more deposits are transferred to the purchaser to significantly reduce their funding needs; something Lloyds Banking Group would not want to do.
In terms of shareholders, given how low bank valuations currently are, given the funding issues and the lack of serious competition to buy the branches rushing through the sale at this time will not result in the best price being paid and in the long term does not represent good value.