By Andrew MacAskill and Lawrence White
LONDON (Reuters) - Lloyds Banking Group (L:LLOY) is close to selecting Berlin as a European base to secure market access to the European Union when Britain leaves the bloc, sources told Reuters.
Britain's largest mortgage lender is examining steps to turn its branch in the German capital into a subsidiary and may apply for a license to do so later this year, the sources said.
Lloyds, which declined to comment, is the only major British retail lender without a subsidiary in another EU country and it would be the first major lender to commit to Berlin as a hub to access the rest of the continent after Britain quits the EU.
Many other European banks are considering Frankfurt, the country's main financial hub and the home of the European Central Bank, as the preferred destination.
Lloyds, which has almost all of its assets in Britain, has been examining how to retain its EU clients and maintain access to the European payments system.
Banks are expected to announce more concrete plans for how they will adapt to Brexit in the coming months after Prime Minister Theresa May confirmed in a speech in January that Britain would leave the European single market.
For Lloyds, the German capital's appeal is that it already has the bank's main European hub with a full management team in place, including the finance, risk and human resources staff required of a full subsidiary.
Therefore, in terms of staff, the Berlin branch would only need to change the status of those roles to meet legal requirements for a subsidiary, rather than having to transfer more people, according to one of the sources.
Lloyds operates in Germany via the Bank of Scotland brand, which it acquired in 2008 as part of the takeover of HBOS and would still likely need to capitalize the new entity in line with regulatory requirements, the sources said.
Franz von L'Estocq, the managing director for Bank of Scotland in Germany, is based in Berlin, where the bank offers savings accounts, private banking and consumer and car loans.
The bank had previously explored setting up a subsidiary in both Frankfurt and Amsterdam.
Last month UBS (S:UBSG) and HSBC (L:HSBA), two of Europe's biggest banks, warned they could each move around 1,000 jobs out of London in the clearest sign yet of how financial firms are preparing for the disruption.