BOSI chief Joe Higgins

The fate of Bank of Scotland Ireland's (BOSI) retail bank, Halifax, remains up in the air as its parent, Lloyds Banking Group, jockeys for advantage in its negotiations with the British Treasury and the EU over the shape of its business and the scale of state aid it will accept.

It is understood that 'Project Primrose', an extensive strategic review begun by BOSI after the British government engineered the rescue of its Edinburgh-based parent bank, HBOS, last September by pushing it to merge with Lloyds, is continuing and that the option of shutting down the branch network remains on the table.

Last week it emerged in British press reports that Lloyds has been running similar reviews of its British businesses, lending credibility to leaks that the company is contemplating closures in Ireland. One plan, codenamed Project Tulip, outlines the possible elimination of hundreds of Halifax branches in the UK.

The reviews come against a backdrop of regulatory pressure on Lloyds both to shrink its £1 trillion balance sheet and to place about a quarter of its loans into the UK asset protection scheme (APS). The European Commission is threatening to make the group sell some assets for the Lloyds/HBOS merger to pass state aid and competition rules. The bank is also negotiating with the British Treasury to reduce the amount of assets it will put into the APS to save some of the £15.6bn fee for participating.

"We are working closely with the treasury to demonstrate to the commission that Lloyds has a strong plan to exit state aid," a Lloyds spokesman said in a statement last week. "At this stage it is too early to say what the result of this review will be."

The British government can exert considerable control over Lloyds through its 43% stake in the bank, but it is seeking to reduce this through a proposed £10bn rights issue which would also see the bank 'minimise' the amount of assets in the APS to about £130m.

Sources have told the Sunday Tribune that the Treasury had been pressuring Lloyds to reduce its exposure in Ireland radically by cutting Halifax and transferring €20bn of the BOSI loan book into the APS, but this has been disputed.

BOSI chief executive Joe Higgins told unions in July that a "significant development" was on the cards, but nothing has materialised. It is believed private equity buyers failed at the last minute to close a deal to buy part or all of the BOSI book in July as well.