Brussels competition chief Neelie Kroes yesterday unveiled the most radical shake-up of UK retail banking in living memory, ordering Royal Bank of Scotland and Lloyds Banking Group to sell off assets and authorising an extra £40bn injection of taxpayer money into the banks.
The extra capital from the Treasury only served to stoke the anger of the public, who are still reeling from the multi-billion pound bank bailouts in the depths of the financial crisis.
As the government laid out plans for its toxic loan insurance programme, the Asset Protection Scheme (APS), it was confirmed that:
The taxpayer’s stake in Lloyds is capped at 43 per cent after the bank confirmed it will exit the APS.
Lloyds will tap investors for £13.5bn via a rights issue in which the government will take up its rights, pumping £5.7bn in the bank. It will also raise a further £7.5bn in contingent capital.
The Treasury will inject £25.5bn into RBS as part of its revised participation in the APS, taking its stake from 70 to 84 per cent. It will also make £8bn available for future emergencies.
The government pockets a £2.5bn break fee from Lloyds to cover the implicit protection received by the bank since it joined the APS in March.
RBS will pay a fee when it eventually exits the APS, equivalent to the largest of either £2.5bn or 10 per cent of the regulatory capital relief received while under the scheme’s protection.
Both banks will pay discretionary bonuses for 2009 in shares instead of cash for staff earning above £39,000, while board executives will defer all bonuses for three years.
As part of the deal brokered by Kroes, nicknamed “Steely Neelie” for her ruthless approach, RBS will divest a 318-strong branch network accounting for two per cent of the UK retail banking market. It will also sell its lucrative insurance business, including the Direct Line, Churchill, and Privilege brands; its 51 per cent stake in commodities trading venture RBS Sempra; and its Global Merchant Services card payment business.
Lloyds will dispose of over 600 branches, equivalent to a 4.6 per cent share of the retail banking market. These include the TSB bank, mortgage provider Cheltenham & Gloucester, its Scottish banking business and its internet bank Intelligent Finance.
RBS chief executive Stephen Hester hit out at the EU, saying: “The deal is clearly more material for the structure of our group than we had hoped, increasing risk to both execution of the plan and earnings dilution.”
And analysts warned the gulf between the Commission’s treatment of the two banks could prove problematic, with Lloyds getting off relatively easily in comparison to its rivals.
“I am surprised at the leniency of the Lloyds deal,” said Charles Stanley analyst Nic Clarke. “Compared to RBS... Lloyds does look like an outsider.”