New Bank Funding And Asset Sales

Lloyds And RBS Banks

Lloyds Banking Group and Royal Bank of Scotland will get another £31 billion from the government and have both agreed to sell hundreds of businesses and branches to appease the EU competition concerns over state aid.

The deal announced yesterday allows the UK to reduce it’s holdings in Lloyds and RBS which are a potentially critical tying up of funds as Britain struggles with a budget deficit.

Months of uncertainty were ended as Lloyds revealed that they would drop out of the government insurance scheme for bad debts by raising £13.5 billion in the world’s greatest ever rights issue, as part of a capital raising plan aimed at sourcing £21 billion.

RBS now remains the only bank joining the government’s Asset protection Scheme, but under more flexible terms than expected earlier this year. This will allow RBS, 70% state owned, to leave the scheme within four years.

Although both banks have agreed to a disposal of assets to remain within EU state assist rules RBS will be particulalry hard hit as they sell chunks of their retail bank under the brand Williams & Glyn, the RBS insurance arm and it’s investment bank.

“We do feel bruised by what we’ve had to go through,” RBS’s chief executive Stephen Hester said on a conference call.

“Our job (of turning around RBS) 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 dropped by 4.8% at 11am to 36.8p, well below the average paid by the government of 50.5p. Lloyds was up 1.3% at 86.2p, but this was also well below the governments cost per share average of 122.6p.

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