British Chancellor Reveals Details of New Bailout for Royal Bank of Scotland (LON: RBS) and Lloyds Banking Group (LON: LYG)

There have been rumors that there would be a major shakeup in the Royal Bank of Scotland (LON: RBS) and Lloyds Banking Group (LON: LYG), and now British Chancellor, Alistair Darling, announced the decision to inject an additional £25.5 billion ($41.6 billion) and £5.7 billion ($9.3 billion) of taxpayer funds into the two banks respectively. Darling referred to the move as a better deal for the taxpayer.

The new bailouts that RBS and Lloyds are receiving aren’t the only shake-ups occurring either. Recently Darling said that the government would be forcing both banks to sell branches that would equate to about 10% of the UK retail banking market, in hopes of increasing competition and creating a better value for British banking customers.

European Union Competition Commissioner Neelie Kroes is also working to shake things up in the British banking world. Kroes goal is that state-funded banks will have no advantage over their private sector rivals. In hopes of promoting competition, the EC has demanded that RBS sells 318 of its branches and Lloyds sells more than 600 of its branches over the next 4 years.

RBS will also be selling its NatWest brand in Scotland, RBS Insurance, and RBS’ credit card payment business, Global Merchant Services. Lloyds will also be getting rid of its TSB brand in England, Wales and Scotland, as well as its mortgage broker, Cheltenham & Gloucester and its “Intelligent Finance” online business.

The British government currently has a 43.5% stake in Lloyds, which says it has no plans to join the Government’s Asset protection Scheme, which will is providing insurance for past toxic loans. Lloyds will pay the government £2.5 billion ($4.1 billion) to pay for the cost of the insurance it’s received from the government since February of this year. Lloyds also plans to raise £21 billion ($34 billion), which includes a £13.5 billon ($22 billion) rights issue and a £7.5 billion ($12 billion) debt swap.

RBS has a bit of a different story. Its latest public capital infusion takes the taxpayers’ stake in the bank to 84.4%, although its voting rights are capped at 75%. Of the billion ($42 billion) received, £13 billion ($21.2 billion) is upfront capital, £6 billion ($9.8 billion) is capital that RBS can draw on if needed and £6.5 billion ($10.6 billion) will be a fee taken as capital. The British government has also promised to invest an additional £8 billion ($13 billion) of capital if the bank’s financial situation deteriorates rapidly.