BRUSSELS (AP) — Britain’s Lloyds Banking Group PLC won EU approval Wednesday for its 17 billion pound ($28.6 billion) government capital injection in return for shrinking its operations.
EU regulators said Lloyds’ plan to sell off more than 600 retail banking branches, or 4.6 percent of its total, would allow a new rival to emerge. They said that would help remove the competitive advantage Lloyds got from the British government bailout.
The EU executive also approved a 2.5 billion pound exit fee that Lloyds will pay to reverse its planned participation in a government asset guarantee program, leaving Royal Bank of Scotland PLC as the sole participant.
The fee recognizes that Lloyds benefited by signing up in March to the plan where the state would refund some losses on 265 billion pounds of assets and also reimburses state costs.
Lloyds will instead fund losses with a record-breaking 20.5 billion pound rights issue. The government, which holds a 43.4 percent stake in Lloyds Banking Group, announced earlier this month that it would inject another 5.9 billion pounds to take up its share in the issue.
The European Commission said Lloyds’ restructuring plan addressed its competition concerns and would allow the bank to wean itself off state support in the long run.
It praised the plan for ensuring “a fair burden sharing of past losses” and said the bank and its capital providers were making a significant contribution toward restructuring costs.
“These elements are important to limit moral hazard, the risk that a company may take excessive risks if it considers that it will not have to pay for the consequences, and distortions of competition,” it said.
The bank also plans to cut about 4,300 jobs and transfer another 680 in a series of reorganizational moves in its group operations, insurance and retail division. This adds to some 6,400 job losses in the first half of the year. It employed 118,000 people at the end of June.
Lloyds Banking Group was formed in January when Lloyds TSB took control of mortgage lender Halifax/Bank of Scotland, or HBOS, which was close to bankruptcy because of risky lending and a high dependence of funding from wholesale markets.
The European Commission said the restructuring measures also committed Lloyds to exiting all noncore business lines and risky portfolios, mainly inherited from HBOS.
