Banks curbed with sell offs, Lloyds raises £21 billion pounds

Part-nationalised Royal Bank of Scotland and Lloyds Banking Group ended months of uncertainty on Tuesday, with Lloyds announcing it would drop out of a government-backed insurance scheme for bad debts by raising 13.5 billion pounds in the world's largest ever rights issue, as part of a 21 billion-pound capital raising plan.

The move leaves RBS, 70 percent state-owned, as the only bank joining the government's Asset Protection Scheme but RBS said it had secured more flexible terms than envisaged earlier this year that will allow it to exit the scheme within four years.

Both banks, however, were also hit by disposal orders to meet EU state aid rules, with RBS forced to sell chunks of its retail bank, RBS Insurance and to shrink its investment banking arm.

"We do feel bruised by what we've had to go through," RBS's chief executive Stephen Hester told reporters on a conference call.

"We feel that the job (of turning around RBS) has been made more difficult for us but we understand the conflicting pressures.

"Our job 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 were down 1.4 percent at 8:45 a.m. at 38p, well below the average price of 50.5p paid by the government for its stake in the bank. Lloyds was up 5.9 percent at 90p, also below the government's average entry price of 122.6p.

"The European Union has effectively torn up the UK's initial rescue scheme for Lloyds/HBOS, with the aim of reducing dominant UK market positions," Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers. "The news is potentially good for both UK consumers and rival banking groups, although more debatable for both Lloyds and RBS shareholders."

The government said the disposals deal announced on Tuesday would increase competition in retail banking, bringing "at least three new banks" onto Britain's high streets in the next four years.