Treasury unveils details of RBS and Lloyds break-up

Published on Tuesday 3 November 2009 08:51

PLANS to break up the part-nationalised Royal Bank of Scotland and Lloyds Banking Group to meet European competition fears were confirmed today.

Both banks have also agreed to a clamp down on bonuses in exchange for more taxpayers' money.

RBS is to sell its NatWest branches in Scotland, as well as RBS-branded branches in England and Wales, the Churchill and Direct Line insurance arm and parts of its investment banking business as the price of state support.

Lloyds Banking Group will offload its Lloyds branches in Scotland, its Cheltenham & Gloucester branches, and the Intelligent Finance online business.

The sell-offs should take place over the next four years.

RBS confirmed plans to place 282 billion in toxic debts into a taxpayer-backed insurance scheme, increasing the government's stake in the bank from 70 to 84 per cent. Lloyds is avoiding the scheme after announcing 21bn fundraising plans, including a 13.5bn rights issue.

The public stake in Lloyds will stay at 43 per cent, but the bank will have to pay the Government a fee of 2.5bn for the protection provided by taxpayers.

The Government will pump in another 30 billion into the two banks under the proposals.

The Treasury said both banks would be required, in return, to meet "tough conditions" on pay and lending. Bonuses for executive directors due this year will be deferred until 2012, while no discretionary cash bonuses for any staff earning more than 39,000 will be paid this year.

Chancellor Alistair Darling said: "The Government has managed to get rid of potential liabilities of 300 billion.

"The situation of these banks was difficult at the beginning of this year, but because of the action we have taken – and we charge the banks large fees, which comes back to the taxpayer – I can see the situation improving."

RBS chief executive Stephen Hester said the announcement marked a "significant step forward" for the bank, which lost a record 24.1bn in 2008.

He said the sell-offs imposed by the European Commission were more extensive than originally planned, but it would approach the disposals in a "disciplined and thoughtful" way.

Yesterday RBS announced 3,700 job losses across its UK branch network as part of efforts to "modernise" its operations.

The Unite union branded the plans "absolute madness".

Rob MacGregor, Unite national officer, said: "This move to reduce frontline clerical branch staff by up to a third is short-sighted in the extreme.

"The staff hit by this decision will be among the lowest paid within RBS."