Lloyds, RBS to sell their assets

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London: Bailed out British banking majors Lloyds Banking Group and the Royal Bank of Scotland have agreed to sell part of their businesses, a move that will bring down their dependence on taxpayers’ money.

The British government holds 43 per cent stake in Lloyds and about 70 per cent in RBS, following their rescue in the wake of the financial meltdown.

In a statement today, the UK Treasury said the government has agreed restructuring plans for RBS and Lloyds that include the divestment of a significant proportion of their retail and corporate banking assets over the next four years.

“The divestments from each bank will represent a viable stand-alone entity, together representing nearly 10 per cent of the UK retail banking market,” it noted.

Moreover, the Treasury pointed out that to ensure these divestments increase diversity and competition in the UK banking market, the assets can only be sold to small or new players in the market.

Lloyds would be not be participating in the Asset Protection Scheme (APS) -- a government programme that guarantees toxic assets of banks -- while RBS would be participating in the scheme on revised terms.

Separately, Lloyds today said it would be raising 21 billion pounds, which includes rights issue worth 13.5 billion pounds. The remaining amount would be mopped up through an exchange offer of securities.

The fund raising plan would help the entity to keep away from APS.

“The likely costs to the taxpayer and the risks on the impact on the public finances have been reduced. Both banks (Lloyds and RBS) will still be required to meet tough conditions on pay and lending...,” the statement said.

In return for taxpayer support provided, both banks have made commitments including non-payment of discretionary cash bonuses in relation to 2009 performance to any staff earning above 39,000 pounds.

Further, executive members of both boards have agreed to defer all bonuses payments due for 2009 until 2012, to ensure that their remuneration is better aligned with the long-term performance of their banks.

“... existing commitments to increase lending to businesses and homeowners by a total of 39 billion pounds for both banks will remain in place,” it added.

About the latest initiatives, Lloyds Banking Group’s Chairman Sir Winfried Bischoff said the proposals provide a significantly more attractive, market-based alternative to participating in APS and offer superior economic value to shareholders.