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

The Treasury said Lloyds and RBS would between them have to sell off businesses equating to 10 percent of the UK retail banking market. Only new entrants or "small players" in the UK market will be allowed to buy the assets, raising the key question of which buyers will step up.

Lloyds said it would sell 600 of its retail branches, with disposals including Lloyds TSB Scotland and Cheltenham & Gloucester mortgage business branches, as well as its Intelligent Finance and the TSB brand.

RBS -- facing tougher EU sanctions including punitive sales imposed as late as this week -- will be forced to sell NatWest branches in Scotland, RBS-branded branches in England and Wales, along with RBS Insurance, Global Merchant Services and RBS Sempra Commodities.

Both banks will have up to five years to make the sales.

LLOYDS DEAL

To avoid the APS, Lloyds said it would raise 21 billion pounds via a 13.5 billion-pound rights issue and by swapping 7.5 billion pounds in existing debt into contingent capital, which will support the bank's capital requirements.

The move will allow Lloyds to avoid the fees associated with the scheme and will cap the government's stake at 43 percent -- while also helping the bank get a better deal with Brussels.

RBS said its participation in the insurance scheme would be under better terms, confirming an expected "pay-as-you-go" arrangement that will allow it to pay annually, rather than via a single upfront fee of 6.5 billion pounds, making it easier for the bank to exit it altogether within four years.

It will now pay 700 million pounds a year for the first three years of membership and 500 million pounds a year thereafter. Under the deal, the extent of any losses borne by the bank rather than the government will rise to 60 billion pounds from 42 billion pounds previously, making it unlikely the bank will dip into the APS fund.

In return for sidestepping or limiting the impact of the APS the banks also agreed not to pay discretionary cash bonuses in relation to 2009 performance to any staff earning above 39,000 pounds while executive members of both boards agreed to defer all bonuses payments due for 2009 until 2012.