RBS and Lloyds Banking Group agree to sell off branches
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Royal Bank of Scotland and Lloyds Banking Group have been demanded by the European Commission to sell off some of their high street branches in order to maintain competition in the UK mortgage market.
RBS is to sell off 318 branches, while Lloyds will dispose of more than 600 branches over the next four years.
Lloyds will also not participate in the government’s Asset Protection Scheme and instead will raise additional private sector capital and pay a fee to the taxpayer for the implicit protection provided to date.
RBS will participate in the APS under revised terms that improve incentives and deliver better risk-sharing with the private sector.
The government says: “To promote greater competition in UK banking, and meet EU State Aid rules, the banks will also be required to make divestments of significant parts of their businesses over the next four years.
“Under the March APS agreement with Lloyds, the government would have been called on to cover 90% of losses for the £260bn in assets covered under the scheme after the first loss had been exceeded.”
Lloyds will raise £21bn through a combination of a £13.5bn rights issue, and £7.5bn by swapping existing debt for contingent capital. The government says this option represents better value for money for taxpayers, as the private sector will now provide the majority of the capital required to protect Lloyds from the downside risks to its balance sheet.
Lloyds will also pay the government a fee of £2.5bn in return for the implicit protection already provided by the taxpayer. The government will take up its rights as a shareholder in Lloyds to participate in the planned capital raising, investing £5.7bn net of an underwriting fee.
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