* Watchdog set to launch full investigation in autumn
* Could force divestments in 2016; Lloyds, RBS most at risk
* Lack of competition in current accounts, business banking
* Big 4 banks have 77 pct of current accounts, 85 pct of
* RBS falls 1.7 pct, Lloyds down 0.7 pct
(Adds opposition MP, analyst comments, details)
By Steve Slater
LONDON, July 18 Britain's big banks could be
broken up after the country's new competition watchdog set out
plans for an 18-month investigation into services for small
business customers and personal accounts because of a lack of
The Competition and Markets Authority said banks have not
done enough to meet the needs of retail customers or small and
medium-sized businesses, such as making it easier to switch
banks or providing clear information on fees.
The review will mark the latest attempt to open up banking
in Britain to more competition and is also likely keep the banks
in the political spotlight ahead of next year's election.
The CMA, which became Britain's new competition watchdog in
April, has the power to order a break up of banks considered too
dominant, as well as so-called behavioural remedies, such as
improving information given to customers.
State-backed Lloyds Banking Group and Royal Bank of
Scotland, the biggest banks for both personal accounts
and business banking, are most at risk of being told to cut
their market share, potentially by selling more branches.
"Our studies have found that despite some positive
developments, significant competition concerns remain which mean
that customers may not be getting consistently good service and
value from their banks," Alex Chisholm, CMA chief executive,
A full investigation had been widely expected. It would take
about 18 months, so it would be early to mid-2016 before any
remedies were proposed.
Britain's big four banks, which also include Barclays
and HSBC, hold 77 percent of the 65 million
personal current accounts in Britain, and have 85 percent of the
3.5 million business current accounts and provide nine out of
every 10 business loans, the CMA said.
Current or personal accounts brought in about 8.1 billion
pounds ($13.8 billion) of revenue last year for the banks - or
about 125 pounds per customer. Revenue from small business
accounts was well over 2 billion pounds,the watchdog said.
Shares in RBS fell 1.7 percent by 1100 GMT, the weakest
stock in the European bank index. Lloyds shares fell 0.7
percent and Barclays and HSBC were both weaker, broadly in line
with the bank sector.
Lloyds and RBS are already being forced to sell more than
900 branches between them by European regulators.
Analysts said these two were unlikely to have to shed much
more of their networks, but they could have to cut into pockets
of strength. That could include business banking in Scotland,
where RBS has 39 percent of the market and Lloyds 30 percent.
An investigation may also raise the threat of more political
interference ahead of a general election due by May.
"A break up thesis will definitely make its way into
political manifestos and news flow is likely to remain volatile
for the banks in this space," Bernstein analyst Chirantan Barua,
Ed Balls, shadow finance minister for the opposition Labour
Party, wants to impose market share caps on banks and welcomed a
possible full industry investigation.
"Ministers claim there is no problem to solve, but everyone
else recognises that we have a lack of competition in our
banking sector," Balls said.
UK authorities have been trying to increase competition in
business banking services for 15 years, but the CMA said
concentration among the big banks had not changed much.
It said barriers to entry for newer and smaller banks remain
significant, there is little movement in the market share of big
banks, customers see little difference between the services on
offer from the big banks, and there is little transparency to
compare prices such as overdraft fees.
As a result, levels of switching are low. Only 3 percent of
personal current account customers switch each year and only 4
percent of small businesses change bank, the CMA said.
The Federation of Small Businesses said the investigation of
business banking should force banks to "up their game" and wants
barriers to entry for new banks to be reduced, including for
alternative finance providers.
"The goal should be to deliver a market structure that
encourages far more dynamism, choice and innovation," John
Allan, the FSB's national chairman, said.
The CMA said it would make a final decision in the autumn
and has given banks and other market participants until Sept. 17
to submit their views. It would be highly surprising if the
investigation did not go ahead.
The big four banks had proposed improving competition in
business banking by setting up a comparison website to increase
transparency and make it easier for companies to switch banks,
but the CMA said that would not appear to go far enough.
It would mark the second full-blown industry investigation
being carried out by the CMA, after saying last month it would
investigate competition among energy suppliers.
($1 = 0.5851 British Pounds)
(Additional reporting by David Milliken; Editing by John
Stonestreet and Jane Merriman)