| RBS, Lloyds Get $51 Billion in Second Bank Bailout |
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RBS, Lloyds Get $51 Billion in Second Bank Bailout
Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds ($51 billion) in a second bailout from the U.K. taxpayer in return for putting a cap on bonuses.
The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s 21 billion-pound fundraising. Both banks said they won’t pay cash bonuses to workers earning more than 39,000 pounds this year.
The rescue will bring the government closer to full ownership over RBS, while Lloyds will escape government control.
Today’s bailout follows the 37 billion pounds the two lenders received last year and will bring the government’s stake in RBS to more than 84 percent from 70 percent today.
Lloyds, the U.K.’s biggest mortgage lender, plans to raise 13.5 billion pounds in the U.K.’s biggest rights offering, and 7.5 billion pounds in exchange offers. The U.K. will keep its stake in Lloyds at 43 percent by taking up its rights to buy 5.8 billion pounds of stock in the sale.
The government will buy 25.5 billion pounds of “B” shares in RBS to strengthen the lender’s capital. The lender will sell its insurance division and some bank branches after negotiations with the European Commission and the U.K. Treasury.
Lloyds’s fundraising will boost its core Tier 1 capital to 8.6 percent from 6.3 percent. The bank will sell a retail banking unit with a 4.6 percent share of the U.K. current account market and 19 percent of the group’s mortgage balances to gain EU approval for its bailout last year.
The bank will also sell Cheltenham & Gloucester-branded accounts and mortgages, its Intelligent Finance online unit, some Lloyds TSB branches and the TSB brand within four years, the bank said.
Under RBS’ revised terms of the asset protection plan, the bank will be responsible for the first 60 billion pounds of losses on the risky loans it puts into the program, compared with the 42.2 billion pounds initially agreed. It will be able to exit the program at any time in return for a 2.5 billion- pound payment, as long as the first loss hasn’t been exceeded.
RBS will pay 700 million pounds in each of the first two years of the program and 500 million pounds annually after that. The bank plans to exit the program within five years, putting the total fees for the APS at about 2.9 billion pounds. RBS initially agreed to pay a fee of 6.5 billion pounds.
In addition, the bank agreed to sell its RBS branches in England and Wales, NatWest branches in Scotland, its insurance division and the Global Merchant Services unit. RBS will also shed its stake in its Sempra commodities trading division.
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