Darling defends bank reforms and £39bn infusion as good value
• Lloyds embarks on a £21bn fundraising
• Government's stake in RBS rising to 84%
Lloyds Banking Group is trying to raise billions from shareholders as part of the government's plan. Photograph: Graeme Robertson
Alistair Darling hailed today's multibillion-pound shake-up of the state-owned banks as good value for taxpayers.
In a statement to MPs in the Commons, the chancellor defended the controversial changes to the structure of Lloyds Banking Group and Royal Bank of Scotland, which could see the taxpayer stump up as much as £39bn and potentially create three new high-street banks.
Under fire from the shadow chancellor, George Osborne, who called Britain's bank bailout a "world record", Darling said: "We are now able to achieve our objectives on financial stability and banking reform at a lower overall cost to the taxpayer."
He said Lloyds would now be a stronger bank and RBS would have more incentive to exit government control. Darling was speaking after a morning of hectic activity that saw a fresh structure for the part-nationalised banks mapped out.
Under the reforms announced , RBS and Lloyds are to face new restrictions on bonuses after receiving nearly £40bn more taxpayers' money.
While the two banks are being forced to sell off parts of their businesses in return for the state aid under rules imposed by Brussels, the government has also extracted new commitments from banks.
The Treasury said that the banks would not be able to pay cash bonuses for the 2009 financial year to any staff earning more than £39,000 and that members of the boards would defer all their bonus payments for this year until 2012.
The move is intended to ensure that their "remuneration is better aligned with the long-term performance for their banks" and came as Sir David Walker, who is reviewing City pay and practices, appeared before the Treasury select committee.
Stephen Hester, chief executive of RBS, said the bonus requirements made it more difficult for the bank – which has a large investment banking division – to recruit the right staff.
The announcements follow intense negotiations between the two banks and the government over the asset protection scheme, intended to insure the two banks' most troublesome assets. Lloyds has now managed to convince the government that it no longer needs the insurance and will embark on a £21bn fundraising exercise, some £13.5bn of which will come in the biggest cash call ever made on the London stockmarket. This means the taxpayer will have to buy £5.7bn of new shares to maintain its stake at 43%.
RBS will, however, continue to buy the insurance from the government on revised terms to those first announced in February and as a result the taxpayers' stake in the bank will rise from 70% to 84%. The government will put in £25.5bn of capital and have another £8bn in reserve.
Alistair Darling insisted the taxpayer would eventually get repaid. "One of my priorities is to make sure the taxpayer does get its money back," the chancellor told GMTV. "It may take years before we know whether we are going to get our money back but a lot of it will come back. As a result of what I am doing today, we have managed to get rid of about £300bn of liabilities."
But Osborne was scathing. "A year ago the government injected £37bn into the banking system and claimed that they had not only saved the banks but saved the world. But today's £39bn bailout is even larger than the first, and their key banking policy of an asset protection scheme has had to be rewritten.
"And there is still no guarantee that today's plan will get credit flowing in the economy, as we have endlessly been promised and which the latest figures show they have failed to deliver. As a result, Britain remains in recession while the rest of the world is recovering."
Both banks have been ordered by the European Union to sell off parts of their business to promote competition although Hester admitted that some of the requirements placed on RBS should be seen as a deterrent to others needing large-scale bailouts.
The banks are selling off businesses that will represent a "standalone entity" that can be bought by new entrants into the market. They represent nearly 10% of the UK retail banking market.
RBS is being forced to sell:
• 318 branches UK-wide (14% of its UK retail network). They are likely to comprise Williams & Glyn's branches – the former name for its branches outside Scotland. This has 1.7 million retail customers, 230,000 small-business customers and £20bn of assets. Uncertainty now hangs over 6,000 jobs.
• RBS Insurance – Churchill, Direct Line and Green Flag – before 2014.
• Global Merchant Services, the card payment acquiring business, which has a top five global market share.
• RBS Sempra Commodities, its commodities trading arm.
RBS has also pledged not to allow its investment banking arm, Global Banking & Markets, to be ranked higher than fifth in the global league tables.
Lloyds is being forced to sell:
• 600 branches – about 20% of its branch network – which represents a 4.6% share of the current account market. This includes the branches, savings and branch-based mortgages of Cheltenham & Gloucester and the branches and customers of Lloyds TSB Scotland.
• Intelligent Finance, its internet bank.
• A £181bn reduction in its assets.
Lloyds has also agreed not to make acquisitions for three to four years and will not be able to pay dividends to shareholders until the end of January 2012 because of stringent rules imposed by Brussels on the way it must treat owners of its bonds and other debt securities.
RBS has been hit harder by the EU than Lloyds, which admitted that the penalties imposed on it by the EU had been "significantly lower" than would have been demanded if it had joined the asset protection scheme. Lloyds said: "The board believes that [leaving the APS] will significantly reduce the severity of the final terms of the restructuring plan required by the EC to limit distortions of competition resulted from the aid received by the group."
Hester insisted that he was not going to "carp" about the bank's treatment, which he admitted would make it more difficult for RBS to achieve its five-year business plan. "We do feel bruised," he said. "We do feel the job has been made more difficult for us."
Some the demands from the EU had been made in the last week and caught RBS by surprise. Hester said: "The agreement in principle reached with the EC [European commission] is clearly more material for the structure of our group than we had hoped, increasing risk to both execution of the plan and earnings dilution."
The business being sold represented £1.1bn of operating profit in 2008.
The Treasury said: "Since the APS was announced, market conditions have improved markedly – largely as a result of the action the government has taken, both domestically and globally in coordination with our partners in the G20 and European Union."
It insisted that the likely costs to the taxpayer and the risks and impacts on the public finances had been "markedly reduced".
No comments:
Post a Comment