RBS and Lloyds shake-up confirmed

RBS in shake-up

Following on from yesterday's speculative reports, it has been confirmed that RBS and Lloyds Banking Group - the two biggest taxpayer supported banks in the UK - will now sell off hundreds of branches in another major shake-up of the banking industry.

The sales, demanded by the European Commission to safeguard competition concerns after the two were bailed out by the UK government, have been supported by the Chairman of the Treasury Select Committee, John McFall, who says both banks must be broken up.

The move will see 70 percent taxpayer-owned RBS sell 318 branches, while Lloyds 0 34.5 percent owned by the government - will sell more than 600 branches over the next four years.

Insurance scheme

Meanwhile, while Lloyds confirmed it would stay out of a government-run insurance scheme and would instead raise GBP£21 billion, including a GBP£13.5 billion rights issue, it will have to pay the UK government GBP£2.5 billion to avoid joining the Government Asset Protection Scheme (Gaps), which provides state insurance for past toxic loans.

Reports suggest the payment is to cover the "implicit protection" provided by the government since it first offered to insure Lloyds' book back in February this year.

RBS, on the other hand, has confirmed it will join the scheme on revised - and more expensive - terms which RBS said will allow it to leave the scheme within four years.

Uncertainty

With both firms now agreeing to the sell-out, months of speculation are over. However, while both banks have agreed to disposals to meet EU state aid rules - with RBS particularly hit - the move will see another GBP£31 billion from the British government going to the banks.

According to their report, the government will place a further GBP£25.5 billion into RBS and pay Lloyds a net GBP£5.7 billion as a shareholder in the rights issue. It is hoped that the massive shake-up will encourage competition in the retail banking sector.

Ken Bowman, an analyst at Hargreaves Lansdown Stockbrokers, told reporters at Reuters that "the news is potentially good for both UK consumers and rival banking groups, although more debatable for both Lloyds and RBS shareholders."

McFall, meanwhile, told the BBC that the break-up was a good move because "customers are getting a bad deal at the moment."

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