INSTANT VIEW - Bank shake-up, record cash call for Lloyds

LONDON (Reuters) - Lloyds Banking Group launched a record 13.5 billion-pound rights issue on Tuesday and along with rival Royal Bank of Scotland has agreed to sell off businesses as part of a complex deal to further boost capital while also meeting EU competition concerns over state aid.

The Treasury said Lloyds and RBS would between them have to sell off businesses equating to 10 percent of the retail banking market to satisfy the competition concerns.

GORDON BROWN, PRIME MINISTER:

"Our aim is that it is not the British public that is financing the banks, but that the banks repay money to the British public and we take another step down that road today. "We are creating more competition in banking, making sure that our banks are built on a more solid basis. We have been able to reduce the liability that we have for the insurance of some of the major banks in this country and we are going to see benefits to the taxpayers."

ALISTAIR DARLING, CHANCELLOR:

"If we didn't do any of this and the banking system collapsed you would be talking about complete chaos.

"One of my priorities is to make sure the taxpayer does get its money back. I would like to see us get as much money as we possibly can and I hope that we will do and if you look at the fees we are charging, they are very, very substantial."

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Darling said he would like to see new entrants to the market: "particularly in relation to mortgage and small and medium sized businesses.

"We were very clear with the EU commissioner that we wanted to make sure it wasn't a case of branches going to another large bank."

CONSERVATIVE SHADOW CHANCELLOR GEORGE OSBORNE:

"Let's not miss the elephant in the room. The Government is having to put another 39.2 billion pounds of taxpayer's money into the banks - a bigger bailout than the original bailout last autumn. "Yet still there is no guarantee that it will get credit flowing in the economy ... As a result Britain remains in recession while the rest of the world is recovering."

PAUL MYNERS, TREASURY MINISTER:

"This is part of a step to bring increased competition to the UK high street banking market. We're going to see something like 14 percent of the UK personal account and small business market transfer to new ownership, new entrants.

"We're going to see at least three new banks operating on the British high street in the next four years. And that's very good news for the British taxpayer.

"These deals have been structured on commercial terms and with patience the taxpayer will not only get back the money we've invested but a very good profit. And I'm very confident that that remains the case. But it will take time.

"We remain very confident that towards the end of the year we will see a return to growth."

IAN GORDON, EXANE BNP PARIBAS ON LLOYDS:

"The launch of a 13.5 billion pounds rights issue, together with proposals to convert 7.5 billion of subordinated debt into contingent capital, represents a superior option (to the APS) if it can be delivered. We believe it can.

"Both pieces are fully underwritten and the benefit of certainty is a material positive factor. That Lloyds is allowed to run with 8.6 percent pro forma core tier 1 is a prima facie example of the regulatory largesse on which it was reliant for today's escape."

KEITH BOWMAN, EQUITY ANALYST AT HARGREAVES LANSDOWN

STOCKBROKERS:

"The European Union has effectively torn up the UK's initial rescue scheme for Lloyds/HBOS, with the aim of reducing dominant UK market positions.

"The news is potentially good for both UK consumers and rival banking groups, although more debatable for both Lloyds and RBS shareholders.

"With Lloyds entering this crisis in better shape than RBS, investor opinion remains more favourable -- a 'hold' against a 'sell' at RBS -- although neither is yet viewed on a positive basis."

EVOLUTION SECURITIES ON LLOYDS:

"The core Tier 1 after the capital raising exercise would be 8.3 percent, instead of our initially estimated 9.9 percent. However, we still believe this would be a reasonably safe capital position, which could improve further in case of disposals.

"Bondholders are reasonably likely to accept the Contingent Convertible exchange, in our view. Their coupons would be substantially more certain, and the interest might be higher."

DAVID BUIK, SENIOR PARTENR AT BGC PARTNERS:

"The whole idea of splitting Cheltenham & Gloucester, TSB and the Intelligent Finance units (of Lloyds), precluding the likes of Barclays and HSBC (from buying them) is very short-sighted. There's no element of mixed bank earnings. They will be saddled with dodgy mortgage debt and they won't be attractive for years."

MANOJ LADWA, SENIOR TRADER AT ETX CAPITAL:

"If all goes to plan then it should restore confidence in the UK banking sector, circumnavigate competition issues and give the UK Treasury value for money.

"But what if it doesn't go to plan? What if we have a double dip recession? These are the questions the markets will be asking and as yet it is not clear that a consensus view has been reached."

DAVID THEBAULT, HEAD OF QUANTITATIVE SALES TRADING AT GLOBAL

EQUITIES, PARIS:

"The timing for such a huge rights issue is quite bad. UBS just posted ugly results that bode ill for European banks' results, and (U.S. lender) CIT just filed for bankruptcy. This raises the question: isn't it too early to pay back government money?"

TOM SALMON, TRADER AT SHORTS & LONGS:

"Yet more public money being pumped into the banks will no doubt draw criticism. Chancellor Darling will have an unenviable task of convincing taxpayers they are getting a good deal."

(Reporting by Kate Holton and UK bureau, Blaise Robinson in Paris; Editing by Greg Mahlich)