The Treasury has announced this morning that:
Lloyds will not participate in the Asset Protection Scheme (APS). Instead it has announced plans to raise £21 billion through a combination of a £13.5 billion rights issue, and £7.5 billion by swapping existing debt for contingent capital. This option represents better value for money for taxpayers, as the private sector will now provide the majority of the capital required to protect Lloyds from the downside risks to its balance sheet.
Lloyds will also pay the Government a fee of £2.5 billion in return for the implicit protection already provided by the taxpayer since the announcement earlier in the year. The Government will take up its rights as a shareholder in Lloyds to participate in the planned capital raising, investing £5.7 billion net of an underwriting fee.
This will see the Government's shareholding in Lloyds remain at 43% and therefore maintain the return for the taxpayer when the Government's shares are eventually sold.
RBS will participate in the APS under revised terms that improve incentives and deliver better risk-sharing with the private sector. Full legal documents are being finalised and will be signed shortly.
As a result the Government's economic interest in RBS will rise to 84%, consistent with the agreement in February, but the Government's ordinary shareholding will not exceed 75%.
To promote greater competition in UK banking, and meet EU State Aid rules, the banks will also be required to make divestments of significant parts of their businesses over the next four years.
