HM Treasury - Financial stability measures for Lloyds Banking Group and Royal Bank of Scotland

03 Nov 2009

Slaughter and May is advising HM Treasury, working closely with Treasury Legal Advisers, on the conclusion of discussions with Lloyds Banking Group (Lloyds) and Royal Bank of Scotland (RBS) regarding their participation in the Government’s Asset Protection Scheme (APS) and capital raising plans.

Lloyds 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. Lloyds will also pay the Government a fee of £2.5 billion in return for the implicit protection already provided. The Government will take up its rights in the proposed rights issue investing £5.7 billion (net of a commitment fee), to maintain its shareholding in Lloyds at 43%.

The Government's final agreement with RBS on its participation in the APS involves a larger first loss to RBS, a smaller pool of insured assets, a capital injection by the Government of £25.5 billion and an annual fee to be paid to the Government. The Government’s economic interest in RBS will rise to 84% but its ordinary shareholding will not exceed 75%. To protect against a worst-case scenario the Government will also provide a contingent capital commitment of up to £8 billion.

In return for taxpayer support Lloyds and RBS have also entered into commitments relating to lending, overdraft charges, and cash bonuses.

On 3 November, 2009 the Government also announced that it had agreed in principle with the European Commission restructuring plans for RBS and Lloyds that include the divestment of a significant proportion of their retail and corporate banking assets over the next four years to small or new players in the market. The divestments from each bank will represent a viable stand-alone entity, together representing nearly 10% of the UK retail banking market.

Contacts

Corporate: Charles Randell (partner), Tim Pharoah (partner), Nilufer von Bismarck (partner), John Papanichola (partner), Paul Dickson (associate), Marek Petecki (associate), Richard Smith (associate); Financing: Matthew Tobin (partner), Richard Levitt (partner), Glynn Cooper (associate), Andy Phillips (associate), Oliver Wicker (associate); Financial Regulation: Ben Kingsley (partner), Tolek Petch (associate); Tax: Graham Iversen (partner); Competition: Isabel Taylor (partner), Alistair Newton (associate)


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