<<Print>>

Royal Bank of Scotland (RBS) and Lloyds Banking Group are due to announce plans to set up new banks from their existing branches and sell them off. The sales have been demanded by the European Commission to safeguard competition concerns after the two were bailed out by the UK government. RBS is expected to sell branches in England and Wales, and its Churchill and Direct Line insurance businesses. Lloyds is likely to offload its Cheltenham & Gloucester branches. In addition, Lloyds is expected to unveil plans to sell its Intelligent Finance online business, and Lloyds TSB branches in Scotland. Both banks will probably have to sell off the bank branches and other businesses within four years. Lloyds, which is 43.5% owned by the government, is also predicted to say it will raise more than �20bn from investors in return for staying out of the Asset Protection Scheme, the state-run insurance scheme to cover toxic loans. The bank is thought to want to avoid the additional government influence that comes with the scheme, and is prepared to pay the government a fee of close to �2.5bn to avoid it. Meanwhile, RBS is tipped to put about �280bn into the scheme, a move that could see the government's stake in the bank increase from the current 70% to 84%. Full details of both RBS and Lloyds plans are due to be announced by both banks and the Treasury. The European Commission has demanded that banks bailed out by taxpayers should be scaled down. "This will be a big day for British banking, the latest chapter in the bailout saga," says BBC chief economics correspondent Hugh Pym. However, he says that it "remains highly uncertain" that the asset sales will attract new players into the banking market. In another development, RBS said on Monday that it is to cut 3,700 jobs across its UK branches, adding it hoped to achieve most through voluntary redundancy. The jobs are to go over the next two years. RBS said it was over-staffed compared with competitors and needed to trim costs, and that the cuts were unconnected to Tuesday's planned announcements. The firm has already unveiled 10,000 job cuts in its investment banking and back office activities in the UK, and a further 6,000 redundancies in overseas operations. It has a total workforce of 170,000, of which 105,000 are in the UK.