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June 2, 2014

TSB in line for £450m gift from Lloyds to build new IT systems

De-mergered bank currently rents existing platform from its former owner.

By Vinod

The UK’s newest high street bank, TSB, could receive up to £450m from its parent company, the state-backed Lloyds Banking Group, if it decides to develop and build its own IT systems, it has been revealed.

The payment covers the costs Lloyds would have had to spend on a new IT system for TSB, which split from the company last year as part of the government’s bailout package following the 2008 banking crisis.

Lloyds opted to provide TSB with a copy of its own systems instead of building a new system from scratch in order to save money, as well as committing to supporting the latter whenever it needs its own IT infrastructure.

This is currently rented out under a 10-year contract, with a break clause written in after five years, at which time TSB could start to build its own systems, before potentially splitting with Lloyds when the deal expires.

Such a move would give TSB, which will operate 631 former Lloyds branches that the group was required to offload by EU regulators, more flexibility to design a system suited to its own needs, without relying on its ex-owner.

News of the payment, which has been approved by the European Commission and HM Treasury, was apparently included in documents circulated to potential investors last week, according to the Sunday Telegraph, which described the move as ‘highly unusual’.

TSB is expected to announce a £1.5bn flotation within the next few weeks, with 25% of the company initially up for sale, with Lloyds no doubt hoping that this provision for a new IT system will make it a much more attractive proposition to new buyers.

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TSB chief executive Paul Pester had previously said his IT platform could support a bank three times its current size reflecting the scalability of what Lloyds has given it.

 

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