Banks get 31 billion more aid, agree sell-offs
Tue 03 Nov, 2009 16:56 -- By Clara Ferreira-Marques and Steve Slater

LONDON (Reuters) - Britain's two largest retail banks secured another 31 billion pounds from the government on Tuesday and agreed to sell branches and key businesses to appease EU competition concerns over state aid.

Royal Bank of Scotland and Lloyds Banking Group also accepted drastic caps on bankers' bonuses in deals that pave the way for Britain to begin selling the bank stakes it bought during the crisis -- a crucial source of funds as the country struggles with a ballooning budget deficit.

Lloyds also freed itself from a government 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.

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

LLOYDS DEAL

To sidestep the APS, Lloyds confirmed market expectations it would raise 21 billion pounds via a discounted rights issue and by swapping 7.5 billion pounds in existing debt into contingent capital, which will support its capital requirements.

The move will allow Lloyds to avoid the fees associated with the costly APS scheme as the economy improves, and will cap the government's stake at 43 percent. However, Lloyds said it will pay the government a 2.5 billion pound break fee to avoid the APS.

The fully underwritten 13.5 billion-pound cash call, which will involve a massive operation to inform Lloyds's 2.8 million small shareholders, will be priced on Nov 24 at the higher of either 15p or a 38-42 percent discount to the ex-rights price.

Lloyds said it had received backing from shareholders and bond investors, but the response on Tuesday was mixed.

"This deal does not look especially attractive ... They can't pay a dividend until 2012 at least and we still have all the secondary issuance to come," one top ten investor said. "I find myself very underwhelmed."

But another top 10 investor added: "The issue will go through successfully. The deal is done effectively."

1:23 PM
RBS and Lloyds will take years to break free from the taxpayer's grip
Thanks to the European Union, the banking sector in the UK is set to change out of all recognition for better, or worse. Billion of pounds more need to be ploughed into our two worst casualties of the banking meltdown, Royal Bank of Scotland and Lloyds Banking Group, which also includes the basket case HBOS.

The Government ploughed a total of 37 billion into the pair of them last year and now needs to inject a further 5.7 billion into Lloyds so that it can turn to the City in order to raise a total of 21 billion. This will include a record breaking 13 billion rights issue at a deeply discounted level to the current ruling price of 86p.

But the EU doesn't like banks that are supported by taxpayers cash. It says that gives them an unfair competitive advantage. So, in return for the extra cash, Lloyds must follow the lead of other European banks and make itself smaller. It must divest itself of a total of 600 high street branches, including all 164 branches of Cheltenham & Gloucester, all of Lloyds TSB in Scotland and a further 280 branches across England and Wales. Also going within the next four years is the TSB brand name and it on-line business Intelligent Finance. RBS is unlikely to escape the cull in return for more taxpayers cash and will also see the Government's stake grow from 70% to a whopping 84%.

All these changes will make life exceedingly difficult for stock market investors. Existing shareholders at Lloyds must decided if they want to support the rights issue, commit more good money after bad and still face the prospect of being further diluted without seeing a return on their investment.

Others may look at the terms of the rights issue and be tempted to buy the heavily discounted shares, lock them away and see what happens. Then there are the fund managers who may look at both banks and wonder how you set about valuing them when a year down the line they may have changed out of all recognition.

Alan Capper asset allocation specialist at Pinner Park Investments says that if investors believe that either Lloyds or RBS shares look unbelievably cheap, they buy them and lock them away for the long-term. With the Government's stake in RBS set to grow, it is unlikely institutional investors will invest further in RBS. They will also have to think long and hard about allocating Lloyds any further funds. By any yardstick, these remains high risk investments. It will be years before either bank are able to break free of the taxpayers grip and, by then, who knows what shape the UK banking industry will be in.

looks like an almighty government f?ck up as usual...........a year ago they smashed competition rules for llloy and HBOS to merge.........now they saying we need lots of smaller banks for competition.

if a private company acted like this, lawsuits all over the place would be aimed at management........anyone wanting to take darling and brown to court?

all these rights issue........several each for all banks........what a waste of money with further FSA incompetent staff and trasury mulling over stuff......plus american banks charging huge sums for rights issue.

gov got lloy for nothing almost now as almost 3 billion paid back already.....and now 2.5 billion to be paid to not do this insurance crap.

northern rock have had the most money and they are just a tiny bank in north east england........ludicrous! and why are newcastlr united sponsored with a nationalised bank .......why are paying for 11 silly geordies running around with northern rock on their tops.

found this link to that dutch bitch.........but that was early in 2009 so the warning was there

http://purestyledc.com/top-10-most-evil-people-in-the-world-today/

text below says this bitch is 4th most evil in world.......yes, they called her a bitch!

Number 4: Neelie Kroes
Accused of:
Monopolistic Powers
Being a bitch
Egotistical
Didnt think we could go an entire ten with at least one woman did you? Who is Neelie Kroes you ask yourself? That in itself makes this bitch evil. She is the European Commissioner for Competition aka the Head Bitch in Charge of the EU.

So what does she do? She comes down on every single U.S. company that is moderately successful doing any business in Europe. While fining Microsoft a whopping 497 million, plus interest! She also has gone after Apple & Google as well. Why? Monopoly? Nope. Greed. Pushing those companies to the point of compliance. When they get pushed too far and threaten to pull out of Europe, she backs off, but like a snake, only temporarily to regroup and attack again. Hey, lets face it, we all know MS is evil, but they are our evil company and if Europe doesnt like it, tell them to build their own operating systems.

Oh, and she switches allegiances to whomever pays her the most. Not unlike other politicians, but then again, not all control all of Europe.

i say......lets shoot this ugly wrinkly bitch

Marni She does have a nice Elvis hair cut.and that look of Deborah Meaden..no you are right shoot her!!!!

i'm off shopping today..............arent there contract killers in this country.......surely the gov or one of the banks can bung them a bit of dosh to take out this vile evil dutch bitch

it really is a shame that the promised referendum will not be possible - nothing to do with cameron reneging on his promise, but reality

Lloyds upgraded to buy from hold at Citigroup, target price raised to 104p from 37p

citigroup has no reputation left.

and how can they almost triple their previous target price.....ridiculous! just goes to show why yanks went bust last year

marni, they have not lost their reputation amongst customers.
They might have lost it to the analysts, which is not a bad thing though!!!

ANalysts are responsible for the problems and they shpuld suffer as we recover.

Lloyds were one of the UKs most respected banks before the HBOS fiasco.
It seems to me,that one should not rubbish everything because of one tragic venture.
In other words,keep the baby,throw out only the bath water!

Chess, that would seem reasonable.

But do you expect this thread to be reasonable?

One can only hope,Fred!
I often get the impression that there are a good few trying to emulate a chicken that is minus its' head.

Lloyds upgraded to buy from hold at Citigroup, target price raised to 104p from 37p.

That's about two-fold rise! and Citigroup closed up on Friday.

Yesterday Saturday 8th

DAILY TELEGRAPH
Money

Banks:
Sell RBS
Buy Barclays
Hold Lloyds, Santander and HSBC

From The Sunday Times -- November 8, 2009

Gordon Brown triggers row with call for bank supertax

GORDON BROWN yesterday threw his weight behind a Tobin tax on financial transactions as a way of taxing and reining in the banks, despite warnings that such taxes are unworkable.

We should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society, he said at the G20 meeting of finance ministers and central bankers in St Andrews, Fife.

The prime ministers plan appeared to fall at the first hurdle when Tim Geithner, the US Treasury secretary, said: A day-by-day financial transaction tax is not something we are prepared to support.

The International Monetary Fund (IMF) has been asked to examine the practicalities of such a tax and report back in April. But Dominique Strauss-Kahn, its managing director, warned that it could prove too easy to avoid for banks.

A tax of 1% or less levied on financial transactions would both raise considerable revenue and limit so-called speculative activity on extremely low-margin trades.

Brown also outlined other ideas that will be considered by the IMF. There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global transaction levy, he said. I do not in any way underestimate the enormous practical and technical issues ... but I do not think that these should prevent us from considering with urgency the legitimate issues.

A Tobin tax named after James Tobin, the economist was floated by Lord Turner, head of the Financial Services Authority, in the summer. Alistair Darling, the chancellor, insisted Geithners opposition did not rule it out. The US, like we do, recognises that there are various issues you have to deal with and that a lot of work is required, he said.

Angela Knight, chief executive of the British Bankers Association, said that Tobin taxes dont work as they require perfect or near-perfect global implementation. Vince Cable, Liberal Democrat Treasury spokesman, said experience suggested it would be hard to implement.

The G20 delegates agreed to work on a global growth strategy, with countries submitting individual plans in January for assessment by the IMF and Organisation for Econo-mic Co-operation and Development.

From The Sunday Times -- November 8, 2009

Secret 165bn loan keeping Lloyds alive

LLOYDS BANKING GROUP is being kept afloat with 165 billion of loans and guarantees from the Bank of England and other central banks around the world, The Sunday Times can reveal.

The banks reliance on state funding, detailed in a document released last week in connection with a separate 21 billion fundraising, gives the first insight into the huge scale of aid extended to banks during the financial crisis.

The document says the bank is still heavily reliant on government funding. Lloyds also says it would face a materially higher refinancing risk if it was not available.

The scale of Lloyds dependency has surprised analysts, but they say it shows just how big a financial timebomb it has become. The support is nearly equal to the 175 billion of UK government borrowing to be raised this year, and almost as big as the Bank of Englands 200 billion quantitative easing programme.

The government has extended the money through two funding plans the Special Liquidity Scheme, which gives loans, and the Credit Guarantee Scheme, under which guarantees are given to allow banks to get commercial loans.

Royal Bank of Scotland is less exposed it has about 40 billion in state funds. It has cut its dependency on state funding by 69% since the peak of the crisis.

Lloyds inherited most of the government loans from HBOS after it agreed to acquire the bank in September 2008.

Banking sources have revealed that the Bank of Englands Special Liquidity Scheme was created in April 2008 with the express purpose of helping HBOS. The group was heavily exposed to mortgage lending, which dwarfed its retail deposits. When markets deteriorated and HBOS could not recycle its capital, the Bank stepped in.

The document shows Lloyds drew down further loans early this year. The bank said the loans should be seen in the context of its 1 trillion balance sheet and said all western banks received state help during the crisis. However, analysts say few continue to be helped on this scale.

The Bank of England will make record profits this year from fees and interest rates paid by the banks for emergency funding.

The Lloyds document also reveals the bank faces a 3.7 billion pension deficit. It is transferring 5 billion of assets to fill the hole.

This weekend the bank faces another potential threat to its fundraising plans. TCI, an activist hedge fund, has begun to orchestrate a potential investor rebellion over a 7.5 billion debt swap deal, part of the banks plans. Some investors continue to put pressure on Lloyds chief executive Eric Daniels to announce a succession plan as a condition for backing the rights issue.

RBS, meanwhile, faces another potential row over staff bonuses. The bank is offering cash advances to its bankers to by-pass new rules. Cut-price loans are being offered to staff allowing them to instantly release the value of bonuses being paid in shares. The loans would enable them to borrow against up to 25% of the total value of the bonus, at interest rates of 3.75%. The bank claimed the rate represented commercial terms, even though it is lower than the mortgage rates offered by RBS to customers.

The bank is also continuing its process of disposals, with first-round bids having been tendered for RBS Asset Management, which controls 30 billion of assets. Aberdeen Asset Management, Black Rock, Henderson, Schroders and Neuberger Berman have all tabled offers.

Morgan Stanley is advising RBS on the sale, which is estimated to be worth between 250 and 300m.

From The Sunday Times -- November 8, 2009

Take heart from bosses optimism about Britain

The chief executives of our large banks and retailers have ideal seats from which to watch the UK economy. The bankers see how stretched individuals are on mortgage payments, how much they are putting on credit cards and into savings accounts. They have a similar view on the financial strength of their corporate customers, both big and small. Retailers can see every day what their customers are doing.

So when three chief executives from these sectors call an end to the recession even though it has not officially ended we should listen.

Sir Stuart Rose at Marks & Spencer said as much last week and even Stephen Hester, head of Royal Bank of Scotland and the most bearish of all high-street bankers, shares a similar view. The world today is a more predictable place, he said. Every country is pulling out of recession. The UK has already, but it is not yet in the data. Eric Daniels of Lloyds said he was more optimistic than some on the short-term prospects for the UK.

But these upbeat remarks need to be qualified. If all agree the recovery is taking place or is just round the corner the bigger concern is that further growth will be muted. The trio are united in believing that Britain faces a long road to recovery. Daniels said you cannot have an economy with twin deficits fiscal (shortage of tax receipts) and trade (balance of payments) and that there are huge questions about how our economy should evolve. Or, as Daniels put it: What is the point of excellence in the UK?

Hester remains cautious about how good the recovery will be. It is a sentiment shared by many of our top industrialists, particularly those whose earnings are dependent on Britain.

You only have to look at last weeks results from RBS and Lloyds to see the troubles that are still stored up.

RBS admitted it has another 40 billion of provisions it could make in the UK in the next two to three years. That comes from exposure to assests and loans to businesses, property and mortgage lending that are no longer worth their original value. That number on top of the huge provisions made this year by RBS may not be as bad as once feared, but it is still huge.

In addition to this, the two banks are going to run down or sell non-core assets and loans over the next four to five years of some 400 billion.

Lloyds intends to sell assets worth 200 billion accounting for 20% of its total balance sheet assets. And RBS intends to wind down 240 billion of assets that have been put in the Government Asset Protection Scheme.

The recovery may be under way, but the scars inflicted by the debt-fuelled boom will take a long time to heal and the ripple effect round the wider economy will be felt for some years to come. We have to return to a business relationship in which banks serve industry, not exploit it as an opportunity for more financial engineering.

The encouraging news is that we are nearly out of the worst but, as we point out on the opposite page, the government and the Bank of England have made a huge, long bet on the UK economy. If there is a double dip, that gamble will make this countrys finances very precarious indeed.

Sparks fly at Barclays

So farewell then Frits Seegers, the Dutchman who shook up Barclays international retail operation. Seegers packed his bags last week after being stripped of his other role running the commercial lending division. This was moved to Bob Diamond, the banks all-powerful head of Barclays Capital.

Those on the inside had seen it coming. Seegers was a human catherine wheel, throwing off random sparks every second. Some found it hard to work for him and a number of big investors had concerns over the rapid expansion of the retail business into Africa, India and Pakistan, among other areas.

It wasnt the flag-planting they didnt like it was the returns that would ultimately be delivered. The show was moving too quickly for anyone to have time to assess the profitability.

The speed with which John Varley, Barclays chief executive, moved yet again underlines how ruthless he can be when it comes to protecting the banks commercial interests.

Just two months ago, most of the top brass at Barclays cited Seegers as one of its stars. Last week the story changed. The new line is that Seegers departure enables the bank to promote the next generation of talent. It is a tough business, but a 4m pay-off undoubtedly softened the blow. And the decision to integrate commercial lending into investment banking is the right one.

ITVs City X Factor

Critics who struggle to put their finger on the failings of the ITV board often point to the number of bankers who have sat in the broadcasters boardroom over the years.

In the Charles Allen era there used to be three banking knights: Sir Peter Burt, Sir Brian Pitman and Sir James Crosby. None of them is the type to sit down to watch two hours of the X Factor on a Saturday night.

Only Crosby remains today, and he will leave almost as soon as he has identified ITVs next chairman. It is striking that several of the candidates who will be interviewed over the next two weeks are bankers too.

That neednt be a bad thing. One name in the frame, Merrill Lynch veteran Bob Wigley, has proved to be a safe pair of hands in marshalling lenders to support a 3.8 billion debt restructuring at Yell, the classified directories group, where he is chairman. The company is also preparing to announce a 500m rights issue with its interim results on Tuesday.

John Nelson, who made his name at Credit Suisse and now chairs the Hammerson property group, also has strong credentials. Anthony Fry, once of Lehman Brothers, is a longer shot.

Investment bankers names are still mud as they prepare to pick up hefty bonuses after Christmas. How interesting, then, that so many are in the long-suffering headhunters sights to fill the ITV job. Perhaps it is meant to be a form of punishment for the profession but with advertising and confidence coming back to television, probably not.

A young mans Game?

A number of big investors in Game, the video retailer, are getting concerned whether Peter Lewis, the chairman, is the right man to take the group forward to the next stage of its growth.

Lewis, 68, has been with the company for 14 years, and in that time has seen the group grow to its present market value of 538m. Some investors are keen for a younger chairman to take his place, more in tune with the groups target audience and one who can put a spark back into the share price.

SFO misses target A FEW weeks ago we wrote that the Serious Fraud Office had set an end-of-October deadline to pass papers to the attorney-general on its long-running fraud investigation into BAE Systems. Has it met the target? Apparently not. The papers are now with Timothy Langdale QC who has been working on the case for years to decide whether to send them off. BAE will have to wait a bit longer for its day of reckoning.