Lloyds and RBS to be broken up


The government today confirmed long-awaited plans to invest billions more pounds in the banks and sell-off large chunks of their assets.  

Royal Bank of Scotland (RBS) is in for a £25.5 billion injection while Lloyds Banking Group will receive £5.7 billion. 

Both banks will also be required to sell "significant" parts of their businesses over the next four years, in order to satisfy competition concerns from the European Commission.

RBS intends to sell off 318 branches in the UK - equating to 14% of its branch network - and the NatWest brand in Scotland.

It will also offload its card payment business, its insurance businesses - namely, Churchill and Direct Line - and its stake in commodities trader RBS Sempra Commodities.

Meanwhile, Lloyds will have to sell at least 600 branches, which account for around 4.6% of the total market share of UK current accounts.

 As expected, this includes the TSB branch in England, Wales and Scotland and mortgage lender Cheltenham & Gloucester, as well as the Intelligent Finance online business.

These account for around £30 billion of customer deposits and £70 billion of lending.

Both banks have also released statements on their participation in the government's so-called 'asset protection scheme'. Lloyds says it will raise £21 billion to avoid taking part in the scheme, via a £13.5 billion rights issue and a £7.5 billion debt swap.

RBS, meanwhile, is to place £282 billion of toxic debts into the taxpayer-backed insurance scheme. This will take the Treasury's stake in the bank up to 84% (Lloyds is 43%-taxpayer owned).

Chancellor Alistair Darling says that three new high street banks could be created over the next four years as a result of the break up of the bailed out banks.  

The government has already been given the green light to split nationalised bank Northern Rock into a ‘good’ bank and a ‘bad bank’, with the former business sold on.

The banks’ assets will be sold to new entrants rather than existing institutions, in order to encourage competition and end the culture of large, multi-national banking groups dominating the high street. Tesco and Virgin are both rumoured to be interested buyers.

Virgin Group made its interest clear on Monday. President Sir Richard Branson told a press conference: "We do plan to create a Virgin bank and we will be interested in looking at the three banks that are going to be privatised to see what assets we would like to buy."

The new banks would focus on mainstream banking products, such as savings, current accounts and mortgages.

In an interview with the BBC, chancellor Alistair Darling said the eventual sale of assets will be timed to ensure taxpayers get their money back.

He added: “What I want to do now is begin the process of reform and reconstruction so we have got a safer, more competitive banking system with more high street banks than we have at the moment, with new entrants coming in. I'd hope that you'd have perhaps three new entrants over the next few years.”'

However, there are concerns that the government may be looking for a ‘quick-fix’ sale.

Liberal Democrat shadow chancellor Vince Cable says the rapid sell off of state assets in the current depressed environment means the taxpayer will get a “very poor deal”.

He believes that banks must now lend to good customers, individuals and businesses, to ensure taxpayers get value for money.

"What is particularly worrying is the indication that Lloyds is trying to wriggle out of its agreement to maintain lending to good business customers,” Cable adds. “If it achieves its objectives this would be an appalling example of the short-term interests of banks being put ahead of national interests."

The banks themselves remain tight-lipped over the proposals.

In a statement, the British Bankers’ Association said it welcomes competition in the banking sector.

It adds: “The UK needs a successful banking sector and any plans must ensure the UK remains both internationally competitive and should help maintain our financial services industry's leading global position. We look forward to seeing the details of the proposals in due course."