Govt confirms splitting up of Lloyds and RBS
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The Government has confirmed that Lloyds Banking Group and RBS will be broken up and parts sold on to new players in the market.
In a statement released today, Government says to promote greater competition in the UK banking sector, and in agreement with Commissioner Kroes, both banks are required to make disinvestments in their retail and corporate banking assets over the next four years, representing 10 per cent of their combined businesses.
To ensure these disinvestments boost competition, the Government says the assets can only be sold to small or new players in the market. The restructuring of both banks are part of the state aid requirements of the European Commission.
The existing Government commitments for Lloyds and RBS to increase lending to small businesses and home owners by £39bn will remain in place for both banks. The banks have also both agreed not to pay cash bonuses in relation to 2009 performance to any staff earning over £39,000. All executive members of both boards have agreed to defer all bonuses payments due in 2009 until 2012.
Due to improved market conditions, the Government says Lloyds will not now participate in the asset protection scheme and instead will raise additional private sector capital and pay a fee to the taxpayer for the protection provided to the bailed-out bank to date. Lloyds has announced plans to raise £21bn through a £13.5bn rights issue and a £7.5bn debt swap. It will pay the Government a £2.5bn fee in return for the implicit protection provided by the taxpayer since earlier this year. The Government’s stake in Lloyds remains at 43 per cent.
RBS will participate under revised terms that “improve incentives and deliver better risk-sharing with the private sector”, a Government statement says.
The bailed-out bank has agreed to pay for APS cover with an annual fee of £700m in 2009-2011 dropping to £500m thereafter. The previously announced initial fee of £6.5bn no longer applies. Revised terms also include a reduction in the overall asset pool and a higher first loss piece.
RBS has also reduced its debt to the Treasury by £25.5bn through the issuance of shares. The Government’s stake in RBS rises to 84 per cent.
RBS will retain the benefit of current and future tax losses, or, subject to Treasury consent may use the tax losses at a minimum surcharge of 20 per cent.
In addition, between now and the end of 2013 RBS will divest RBS Insurance and Global Merchant Services, its card payment acquiring business. RBS’s interest in RBS Sempra Commodities, a global commodities trader, will also be divested.
RBS group chief executive Stephen Hester says: “Today marks another significant step forward for RBS, removing the two key remaining uncertainties for our Group with agreement on our entry to the APS and in principle agreement on the State Aid measures with the EC.
“I am pleased that we have now agreed principal terms for entry to the APS and with this a major re-organisation of the scheme itself. We are now more confident that we will be able to navigate the years ahead without recourse to claims under APS but the decision to participate is necessary to meet the FSA framework and will give us the stability we need to deliver our strategic plan.”
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