RBS, Lloyds get £31 bn in second bailout in return for cap on bonuses

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: Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive £31.3 billion ($51 billion) in a second bailout from the UK taxpayer in return for putting a cap on bonuses.

The Treasury will inject £25.5 billion of capital into RBS, for a total of £45.5 billion, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s £21 billion fundraising. Both banks said they won’t pay cash bonuses to workers earning more than £39,000 this year.

The rescue will bring the government closer to full ownership of RBS, while Lloyds will escape government control. Lloyds CEO Eric Daniels will raise funds from money managers to avoid Treasury’s asset insurance plan that would give the government a majority stake. He’s betting bad loans will decline as the Bank of England says the country’s recession is nearly over. In contrast, Stephen Hester, RBS’s CEO, will accept greater government oversight and insure £282 billion of his banks’ riskiest assets with the Treasury. “There is now a very fine line between RBS being nationalised,” said Danny Gabay, director of Fathom Consulting in London and a former economist at the Bank of England. “This contrasts with Lloyds willing to fight harder for its independence.”

RBS fell 2.2% to 37.80 pence as of 10:05 am in London trading, after dropping as much as 5.6%. Lloyds climbed 2.8% to 87.35 pence. The bailout follows the £37 billion the two lenders received last year and will bring the government’s stake in RBS to more than 84% from 70% on Tuesday. Lloyds, the UK’s biggest mortgage lender, plans to raise £13.5 billion in the UK’s biggest rights offering, and £7.5 billion in exchange offers, the London-based bank said in its statement. The UK will keep its stake in Lloyds at 43% by taking up its rights to buy £5.8 billion of stock in the sale.

Directors of both banks will defer their 2009 bonus payments until 2012, the Treasury said on Tuesday.

“We don’t want to demonize people in banking,” city minister Paul Myners said in an interview with BBC television today, adding that most people in banking are not highly paid. “But at the top of banking, we’re going to bear down on remuneration.” The government will buy £25.5 billion of “B” shares in RBS to strengthen the lender’s capital, the bank said in a statement.