Banks get £31 billion more aid, agree sell-offs

"Our job (of turning around RBS) has been made more difficult by some of the aspects of the EU settlement, but nevertheless we believe it is a do-able job."

Shares in RBS, one of the top recipients of bailout funds globally, closed down 7 percent at 35.9p, well below the average price of 50.5p paid by the government for its stake.

Shares in Lloyds, which was backed by the state when it rescued battered rival HBOS at the height of the credit crunch, rose 2.7 percent to 87.4p, below the state's entry price of 122.6p.

PUNITIVE ASSET SALES

The government, which will inject 25.5 billion pounds into RBS and pay Lloyds a net 5.7 billion pounds to take up its rights in the cash call, said the disposals would shake up competition in retail banking, bringing "at least three new banks" to Britain's high streets over the next four years.

Lloyds and RBS will between them have to sell off businesses representing almost 10 percent of the UK retail banking market. Only new entrants or "small players" in the market will be allowed to bid, raising doubts about which buyers will step up.

Lloyds, which has avoided harsher penalties by staying out of the APS, said it would sell 600 of its retail branches, with disposals including Lloyds TSB Scotland, Cheltenham & Gloucester branches and its Intelligent Finance and the TSB brand.

To address EU concerns, it will face a dividend ban for two years and a prohibition on acquisitions for up to four years.

RBS will be forced to sell NatWest branches in Scotland and RBS-branded branches in England and Wales.

It will also have to sell Britain's largest car insurer, card payment business Global Merchant Services, sell its interest in RBS Sempra Commodities and shrink its investment bank, including capping its global debt league ranking to outside the top five.