RBS & Lloyds shake-up announced

Banking sell-off at Lloyds and RBS

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Tuesday, 03, Nov 2009 08:54

A major reorganisation of Royal Bank of Scotland (RBS) and Lloyds Banking was announced today - with both forced to sell off branches and businesses to meet European state aid rules. The decision means up to a tenth of high street banking in the UK will go on sale.

Lloyds Banking is to sell off 600 branches, a 4.6 per cent share of the personal current accounts market in the UK and approximately 19 per cent of its mortgage assets.

The TSB brand is being sold, the branches, savings accounts and branch based mortgages of Cheltenham & Gloucester, branches and customers of Lloyds TSB Scotland, Intelligent Finance, and some Lloyds TSB branches in England and Wales with their customers will be sold.

Lloyds Banking is also set to raise £13.5 billion from a rights issue and £7.5bn by swapping existing debt for capital, while avoiding the government's asset protection scheme (APS). Royal Bank of Scotland is set to sign up to the toxic asset insurance scheme.

Chancellor Alistair Darling said the deal reduces the exposure for the taxpayer, adding it was "unthinkable" that LLoyds would have been able to raise funds from investors six months ago.

Lloyds Banking is set to pay the taxpayer £2.5 billion for the APS cover since February, but the taxpayer will spend £5.7 billion to buy shares in the lender to hold on to its 43 per cent stake in the bank.

Royal Bank of Scotland will enter the asset protection scheme - but the bank will be liable to greater initial losses, £60 billion, and a reduced number of assets, £282 billion, will be covered.

The government will also inject £25.5 billion into RBS, with the bank offered the option of £8 billion more capital if needed.

RBS will sell off the RBS branch network in England and Wales, with the NatWest branches in Scotland, along with RBS Insurance, Global Merchant Services and its interest in RBS Sempra Commodities.

As a part of the deal both banks have agreed to stop bonuses for staff earning above £39,000, with executives deferring bonuses until 2012.