casper
11-03-2009, 11:52 PM
Lloyds, RBS agree to massive shake-up
By Clara Ferreira-Marques and Steve Slater
LONDON - Britain's two largest retail lenders have agreed to a massive shake-up of the banking sector that will see both sell hundreds of branches and key businesses to appease EU concerns over state aid and competition.
Part-nationalized Royal Bank of Scotland and Lloyds Banking Group ended months of uncertainty on Tuesday, with Lloyds announcing it would drop out of a government-backed insurance scheme for bad debts by raising 13.5 billion pounds ($22.08 billion) in the world's largest ever rights issue, as part of a 21 billion-pound capital raising plan.
The move leaves RBS, 70 percent state-owned, as the only bank joining the government's Asset Protection Scheme but RBS said it had secured more flexible terms than envisaged earlier this year that will allow it to exit the scheme within four years.
Both banks, however, were also hit by disposal orders to meet EU state aid rules, with RBS forced to sell chunks of its retail bank, RBS Insurance and to shrink its investment banking arm.
"We do feel bruised by what we've had to go through," RBS's chief executive Stephen Hester told reporters on a conference call.
"We feel that the job (of turning around RBS) has been made more difficult for us but we understand the conflicting pressures.
"Our job has been made more difficult by some of the aspects of the EU settlement but nevertheless we believe it is a doable job," he added.
Shares in RBS were down 1.4 percent at 0845 GMT (3:45 a.m. EST) at 38p, well below the average price of 50.5p paid by the government for its stake in the bank. Lloyds was up 5.9 percent at 90p, also below the government's average entry price of 122.6p.
"The European Union has effectively torn up the UK's initial rescue scheme for Lloyds/HBOS, with the aim of reducing dominant UK market positions," Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers. "The news is potentially good for both UK consumers and rival banking groups, although more debatable for both Lloyds and RBS shareholders."
The UK government said the disposals deal announced on Tuesday would increase competition in retail banking, bringing "at least three new banks" onto Britain's high streets in the next four years.
The British Treasury said Lloyds and RBS would between them have to sell off businesses equating to 10 percent of the UK retail banking market. Only new entrants or "small players" in the UK market will be allowed to buy the assets, raising the key question of which buyers will step up.
Lloyds said it would sell 600 of its retail branches, with disposals including Lloyds TSB Scotland and Cheltenham & Gloucester mortgage business branches, as well as its Intelligent Finance and the TSB brand.
RBS -- facing tougher EU sanctions including punitive sales imposed as late as this week -- will be forced to sell NatWest branches in Scotland, RBS-branded branches in England and Wales, along with RBS Insurance, Global Merchant Services and RBS Sempra Commodities.
Both banks will have up to five years to make the sales.
By Clara Ferreira-Marques and Steve Slater
LONDON - Britain's two largest retail lenders have agreed to a massive shake-up of the banking sector that will see both sell hundreds of branches and key businesses to appease EU concerns over state aid and competition.
Part-nationalized Royal Bank of Scotland and Lloyds Banking Group ended months of uncertainty on Tuesday, with Lloyds announcing it would drop out of a government-backed insurance scheme for bad debts by raising 13.5 billion pounds ($22.08 billion) in the world's largest ever rights issue, as part of a 21 billion-pound capital raising plan.
The move leaves RBS, 70 percent state-owned, as the only bank joining the government's Asset Protection Scheme but RBS said it had secured more flexible terms than envisaged earlier this year that will allow it to exit the scheme within four years.
Both banks, however, were also hit by disposal orders to meet EU state aid rules, with RBS forced to sell chunks of its retail bank, RBS Insurance and to shrink its investment banking arm.
"We do feel bruised by what we've had to go through," RBS's chief executive Stephen Hester told reporters on a conference call.
"We feel that the job (of turning around RBS) has been made more difficult for us but we understand the conflicting pressures.
"Our job has been made more difficult by some of the aspects of the EU settlement but nevertheless we believe it is a doable job," he added.
Shares in RBS were down 1.4 percent at 0845 GMT (3:45 a.m. EST) at 38p, well below the average price of 50.5p paid by the government for its stake in the bank. Lloyds was up 5.9 percent at 90p, also below the government's average entry price of 122.6p.
"The European Union has effectively torn up the UK's initial rescue scheme for Lloyds/HBOS, with the aim of reducing dominant UK market positions," Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers. "The news is potentially good for both UK consumers and rival banking groups, although more debatable for both Lloyds and RBS shareholders."
The UK government said the disposals deal announced on Tuesday would increase competition in retail banking, bringing "at least three new banks" onto Britain's high streets in the next four years.
The British Treasury said Lloyds and RBS would between them have to sell off businesses equating to 10 percent of the UK retail banking market. Only new entrants or "small players" in the UK market will be allowed to buy the assets, raising the key question of which buyers will step up.
Lloyds said it would sell 600 of its retail branches, with disposals including Lloyds TSB Scotland and Cheltenham & Gloucester mortgage business branches, as well as its Intelligent Finance and the TSB brand.
RBS -- facing tougher EU sanctions including punitive sales imposed as late as this week -- will be forced to sell NatWest branches in Scotland, RBS-branded branches in England and Wales, along with RBS Insurance, Global Merchant Services and RBS Sempra Commodities.
Both banks will have up to five years to make the sales.