Lloyds Banking Group launched a record 13.5 billion pound ($22 billion) rights issue and along with rival Royal Bank of Scotland agreed to sell off some businesses to limit their reliance on government support.

The British Treasury said Lloyds and rival Royal Bank of Scotland would between them have to sell off businesses equating to 10 percent of the UK retail banking market.

To ensure these divestments increase diversity and competition in the UK banking market, the assets can only be sold to small or new players in the market, the Treasury said of moves designed to appease EU competition authorities.

Lloyds and RBS have between them received billions of pounds in state aid after coming close to collapse at the height of last year's banking crisis. The government holds majority stakes in both banks.

Lloyds said it would raise 21 billion pounds ($34.3 billion) via a 13.5 billion-pound rights issue and by swapping 7.5 billion pounds in existing debt into contingent capital.

The move will allow it to stay out of the government's Asset Protection Scheme (APS), designed to insure its riskier loans, thereby skirting the fees associated with scheme, putting a cap on the government's 43 percent stake and avoiding any further forced disposals under state aid rules.

Part-nationalized RBS will join the scheme but will pay fees for its membership annually rather than via a single up-front fee of 6.5 billion pounds.

It will now pay 700 million pounds a year for the first three years of membership and 500 million pounds a year thereafter. The extent of any losses borne by the bank rather than the government will rise to 60 billion pounds from 42 billion pounds previously.

Lloyds said it would sell 600 of its retail branches with disposals including Lloyds TSB Scotland and its Cheltenham & Gloucester mortgage business branches, as well as its Intelligent Finance and the TSB brand.

In return for sidestepping or limiting the impact of the APS the banks also agreed not to pay discretionary cash bonuses in relation to 2009 performance to any staff earning above 39,000 pounds while executive members of both boards agreed to defer all bonuses payments due for 2009 until 2012.

($1=.6115 pounds)

(Writing by Paul Hoskins; Editing by Greg Mahlich)

United kingdom Royal Bank of Scotland