DealBook: R.B.S. and Lloyds Banking Say They’ll Move if Scotland Votes for 1ndependence

Photo The Royal Bank of Scotland said it was looking at contingency plans if Scots vote for independence next week.Credit Toby Melville/Reuters

LONDON — Two of Britain's largest banks, the Lloyds Banking Group and the Royal Bank of Scotland, have said they would shift their bases to England if Scotland votes for independence next week.

The moves, if they happen, would be mostly technical in nature. The banking operations and jobs of R.B.S. and Lloyds in Scotland would mostly stay there. But by changing where they are incorporated to England, the companies would maintain the backing of the Bank of England as a lender of last resort and continued deposit protection for their customers.

Like many companies, the two banks have mostly stayed out of the independence debate, but they said they had begun contingency planning in case Scotland decides in the Sept. 18 referendum to leave the United Kingdom.

Polls in the past week have indicated a vote in favor of independence is more likely than initially thought, prompting a number of businesses to weigh in on the issue and a push by British politicians to persuade Scotland to keep the union intact.

"As part of such contingency planning, RBS believes that it would be necessary to re-domicile the bank's holding company and its primary rated operating entity (The Royal Bank of Scotland plc) to England," the bank said in a news release on Thursday. "In the event of a 'Yes' vote, the decision to re-domicile should have no impact on everyday banking services used by our customers throughout the British Isles."

Founded in 1727, R.B.S. is one of Britain's oldest banks. It has its corporate headquarters on a sprawling campus near the Edinburgh airport and employs about 11,500 people in Scotland.

"R.B.S. intends to retain a significant level of its operations and employment in Scotland to support its customers there and the activities of the whole bank," it said.

Late Wednesday, Lloyds confirmed that it would move its domicile to England from Scotland if the referendum came out in favor of independence.

"While the scale of potential change is currently unclear, we have contingency plans in place which include the establishment of new principal legal entities in England," Lloyds said in a statement. "This is a legal procedure and there would be no immediate changes or issues which could affect our business or our customers."

Lloyds employs about 16,000 people in Scotland, the vast majority of whom work in bank branches or call centers. The company is incorporated in Scotland, but has its headquarters in London.

"We are committed to remaining a very significant employer in Scotland," a Lloyds spokesman said on Thursday.

The British government continues to own significant stakes in both Lloyds and R.B.S. after bailouts of the lenders during the financial crisis.

Lloyds received a bailout of 17 billion pounds, or about $27.4 billion. The British government owns a roughly 25 percent stake in Lloyds after two sales in the past year to reduce its holdings.

The British government owns an 81 percent stake in R.B.S. after a £46 billion bailout.

Any changes in the banks' status in Scotland would most likely not happen immediately. A vote in favor of independence would be followed by an 18-month transition period in which politicians in Scotland and in England would negotiate a variety of issues ahead of a formal breakup, ranging from the allocation of military forces to treasury issues.

Mark J. Carney, the governor of the Bank of England, told a Parliament committee on Wednesday afternoon that the central bank would remain a lender of last resort for banks in Scotland during the transition period.

After that, it would be up to Scotland to determine who backed financial institutions, which make up a large portion of Scotland's economy, Mr. Carney said. Edinburgh serves as a financial center for many insurance companies and asset managers.

Under European law, the country where a financial institution is incorporated, not the country in which those assets are situated, serves as the lender of last resort, Mr. Carney said. The rest of Britain, outside of Scotland, makes up a large portion of the deposit bases of both R.B.S. and Lloyds.

George Osborne, the chancellor of the Exchequer, said earlier this week that Britain would not share the pound with Scotland in a currency union if it voted for independence.

No decision has been made on what currency Scotland might use if it goes independent.

Scottish pound notes are currently printed by the Royal Bank of Scotland and backed by the Bank of England. Some merchants in northern England stopped taking Scottish bank notes earlier this year in anticipation of the break up.

It is possible that Scotland opts to uses the pound for day-to-day transactions, a process known as "sterlingization." For example, some countries in Latin America and in the Caribbean only use the United States dollar or use the dollar along with other currencies. By doing so, those countries opt for a more stable currency, but lack control over their own monetary policy.

Mr. Carney, in his testimony on Wednesday, said countries that adopt another nation's currency, without an official sharing agreement, often have to maintain larger levels of reserves in order to back that currency and gain the confidence of the public.

In an economy that is heavily tied to the financial services industry, as is the case in Scotland, the country often has to maintain reserves well above its gross domestic product, Mr. Carney said.

The uncertainty about the effects of independence on the currency and on the banking sector extends to how much an independent Scotland could depend on North Sea oil reserves. Leaders in both the finance and energy sectors are now warning against the perils of breaking away from the United Kingdom.

On Wednesday, the energy company BP said that it believed its prospects for oil exploration in the North Sea were "best served by maintaining the existing capacity and integrity of the United Kingdom."

Ben van Beurden, the Shell chief executive, has previously said he would prefer that Scotland remain part of Britain. Both energy companies are large employers in Scotland.

Correction: September 11, 2014
An earlier version of this article misstated the currency used by Hong Kong. Hong Kong uses its own dollar, which is pegged to the United States dollar at a fixed exchange rate. It does not use the United States dollar as its currency.
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