British banks Lloyds & RBS announce major shuffle

 Both banks were forced by the European Union to sell large parts of their businesses to comply with competition regulation.

RBS agreed to sell its insurance business and some bank branches in England, Wales and Scotland to meet European competition rules on accepting state aid.

Additional investment

The bank, which is already majority-owned by the British government, would also take an additional investment of £25.5 billion, or $41.6 billion, from the Treasury and accept help in containing potential losses from toxic assets. As a result, the government would increase its stake in the bank to 84.4 per cent from 70 per cent. In contrast, Lloyds announced plans to tap investors for £21 billion in what would be Britain’s biggest rights offer to avoid handing over a majority stake to the government.

The planned sale of shares and exchange offers would allow the bank to fulfill capital requirements without participating in the asset protection scheme and hand over a greater share to the government as a result. The government already owns a 43 percent stake in Lloyds. RBS plans to sell 318 branches, or 14 per cent of its retail network, a step that would reduce its market share in retail banking in Britain by 2 percentage points. RBS said it expected to sell the assets through initial share sales or to other companies over the next four years.

600 branch sales

Lloyds would sell at least 600 branches, its Cheltenham & Gloucester mortgage brokerage and a financial advisory Web site. The divestments would account for about £30 billion of deposits and £70 billion of lending, the bank said.

As part of asset protection agreement, RBS would have to pay for the first £60 billion in losses on certain illiquid assets, more than had been agreed on earlier. The bank would pay £700 million a year to take part in the plan, rather than a £6.5 billion flat fee negotiated earlier, and it would be able to exit the plan at any time for £2.5 billion. RBS plans to axe about 3,700 jobs across its retail operations in Britain.