Government eyes more bank shares

The government will unveil plans this week to spend 30 billion pounds buying further shares of rescued banks Royal Bank of Scotland and Lloyds, The Daily Telegraph reported on Monday.

The newspaper said Chancellor Alistair Darling has agreed to spend about 25 billion pounds on shares in part-nationalised RBS and 5.5 billion pounds on shares in Lloyds in a move expected to be announced on Tuesday.

The government's stake in RBS would rise to 84 percent from 70 percent as a result of the move.

RBS declined to comment when contacted by Reuters. A Lloyds spokesperson was not available.

The report comes as the government is preparing to announce a banking overhaul this week as carve-up plans for the two rescued banks are finalised.

The government hopes to attract new players to the market following a process that will see the country's largest retail lenders selling off assets, including a string of high street bank branches, and shrinking back their balance sheets.

Part-nationalised RBS and Lloyds Banking Group, 43 percent state-owned, have been under scrutiny for months by EU competition regulators investigating the impact of billions of pounds received in state aid. The banks are also negotiating with the government over a major insurance scheme for bad debts.

Both banks are set to detail a final deal with the government this week, including asset sales to ease EU concerns, sources close to the matter have told Reuters.

RBS, which is set to secure flexibility but to remain in the so-called Asset Protection Scheme, is expected be told to sell its insurance arm - with top brands Direct Line and Churchill - and RBS-branded branches in England and Wales. It could revive its Williams & Glyn's brand. 

Lloyds, which hopes to avoid the APS with a rights issue and other measures, is close to a deal with the government and Brussels under which it would sell Lloyds TSB Scotland, its Cheltenham & Gloucester branch network, and internet banking unit Intelligent Finance, sources familiar with the matter have said.

The Telegraph reported over the weekend that the TSB brand - the Trustee Savings Bank, bought up by Lloyds - could be brought back to market some of the assets.

"What I want to do now is begin the process of reform and reconstruction so we have got a safer, more competitive banking system with more high street banks than we have at the moment, with new entrants coming in," Darling told BBC television on Sunday.

Darling, who has frequently spoken of the need for greater competition among retail lenders, stopped short of confirming expectations he will block existing players in the market - including the acquisitive Santander - from buying the assets.

The Financial Times reported on Monday that Santander will be allowed to bid for RBS's 312 business-focussed branches under competition rules agreed between London and Brussels as the Spanish banking group has less than 8 percent of the small business lending market.