UK banks tamed but not hamstrung by bailout

By Paul Hoskins and Myles Neligan - Analysis

LONDON (Reuters) - Banks who opted out of Britain's 37 billion pound ($65 billion) bailout expect to enjoy a two-tier system where rivals are hamstrung by strict rules imposed as conditions for their government cash injections.

Are they right?

Certainly that was the market's verdict on Monday. Shares in those taking part in the bailout dived, while HSBC (HSBA.L), Barclays (BARC.L) and Standard Chartered (STAN.L), who believe they can do without taxpayers' money, jumped.

But some analysts believe the terms and conditions that will apply to Lloyds TSB (LLOY.L), HBOS HBOS.L and Royal Bank of Scotland (RBS.L) in return for billions of pounds of state money may not be as onerous as investors fear, or their rivals hope.

Barclays Chief Executive John Varley told reporters that going it alone could give the bank a competitive advantage.

"What we are protecting and what we want to protect is the right to self-determination," Varley said. "It's helpful if competitors in some countries where we operate have less strategic choice than we do."

Barclays is boosting capital by over 6.5 billion pounds but has said it can do so without government help, with one existing shareholder already promising to contribute 1 billion pounds.

HSBC and Standard Chartered, whose businesses are more internationally focused, had never been expected to take part.

While Barclays has scrapped its final dividend for this year, the others have done so indefinitely. They will also see the government become major shareholders, and have committed to maintaining mortgage and business loan availability at 2007 levels.

"The last thing the consumer and the UK banks sector need is more stupid incorrectly priced lending," Numis Securities analyst James Hamilton wrote in a note.

"What have we got? Commitments to lend at the frenzied 2007 levels by all the banks bar Barclays who seem to have seen sense and are looking to shrink their loan book."

HSBC, Standard Chartered and Barclays may also hope to gain a strategic advantage when it comes to recruiting the best in the business after the government imposed remuneration guidelines on the others.

"VERY NEBULOUS"

The requirements imposed on those who have taken the life-line may not, however, be quite so problematic as suggested by rivals, and by a government anxious to show it is punishing those responsible for the meltdown.

"The aim behind it is that the banks shouldn't withdraw from the market," Derek Chambers, banks analyst at Standard & Poor's Equity Research, said of the commitment on lending levels.