Royal Bank of Scotland (RBS) Group will sell its insurance division and bank branches after negotiations with the European Commission and the UK Treasury, pushing it further into government hands.
RBS, which owns Ulster Bank in Ireland, also agreed to put £282 billion of assets into the government's Asset Protection Scheme and take an additional £25.5 billion of investment from the Treasury, the Edinburgh-based bank said today in a statement. As a result, the government will increase its stake in RBS to 84.4 per cent.
"The agreement in principle reached with the EC is clearly more material for the structure of our Group than we had hoped, increasing risk to both execution of the plan and earnings dilution," Chief Executive Officer Stephen Hester said in the statement. "But this is an acceptable result for RBS."
RBS will increase the first loss on the assets protected under the government insurance programme to about £60 billion, from the £42.2 billion initially agreed.
The bank will sell its RBS branches in England and Wales, as well as its NatWest branches in Scotland. RBS will also sell its insurance and Global Merchant Services units, as well as its stake in Sempra Commodities to meet European Union requirements for taking state aid, RBS said in the statement.
Elsewhere, Lloyds Banking Group, 43 per cent government-owned, will sell a retail banking unit with a 4.6 per cent share of the current account market and 19 per cent of the group's mortgage balances to gain European Union approval for last year's £17 billion bailout package.
Lloyds, which owns Bank of Scotland (Ireland), also plans to raise £21 billion in Britain's biggest rights issue and deny the government majority control of the country's largest mortgage lender.
The bank will raise £13.5 billion in the share sale, and £7.5 billion in exchange offers, the London-based bank said in a statement today. The shares will be sold for 15 pence, 82 per cent less than Lloyds's closing price yesterday.
The lender will not take part in the government's Asset Protection Scheme, which would have increased the UK's stake to about 62 per cent and cost the bank £15.6 billion in fees.
The bank will pay the government a £2.5 billion for having had what the Treasury called the "implicit protection" of the plan for the past eight months.
The government will invest an additional £5.8 billion by taking up its rights in the Lloyds share sale.
Bloomberg