High street banking is set for a radical shake-up under a restructuring plan that could involve the sale of almost 1,000 branches and millions of customers to new owners within months.

The likely sell-off of banking assets came as the Government pledged to pump £39 billion of fresh capital into Royal Bank of Scotland and Lloyds Banking Group, bringing the total bill for taxpayers’ support for the two banks to £76 billion since the original bailout last year.

Lord Myners, the City Minister, said that taxpayers would get a “good deal” from the scheme. It has been revised significantly since the original twin plan in February to create a giant insurance scheme for banks’ toxic assets while also ploughing new capital into Lloyds and RBS so that the banks could meet the Financial Services Authority’s stress tests.

Yesterday Lloyds and RBS outlined the new details of the Government’s capital injections. They also listed a string of assets that they had been ordered to sell by the European Commission in return for the billions of pounds of state aid they have received.

First on the block are likely to be RBS’s 318 branches, mainly in England and Wales, which will be parcelled up under the resurrected Williams & Glyn’s brand. RBS will reduce its dominant market share in business banking by five percentage points as a result of the sale.

Analysts said that Santander, of Spain, was a strong contender to buy Williams & Glyn’s because it has a small foothold in the UK business banking market. Santander declined to comment.

Lloyds, which is 43 per cent taxpayer-owned, must sell 600 branches under its old TSB brand so that it can reduce its dominant position in current accounts and mortgages by five percentage points. Cheltenham & Gloucester, Lloyds TSB in Scotland and some other Lloyds and Halifax branches in England and Wales will be included. Analysts said that this sale could take longer because it is a more diverse group of assets to meld together.

Both banks have been forced by Brussels to make other sacrifices, with the greatest punishment levelled against RBS because of its 70 per cent- taxpayer ownership. The Edinburgh-based bank confirmed that it would sell its insurance division, made up of Churchill, Direct Line and Green Flag, a requirement that Stephen Hester, the chief executive of RBS, called “bruising”. Both banks will be given up to four years to complete the sell-off.

The Treasury and the two banks also gave along-awaited details of plans to raise capital and to deal with billions of pounds of toxic assets.

Lloyds has been given the go-ahead after weeks of wrangling with the Treasury and regulators to avoid the Government’s Asset Protection Scheme (APS). Instead, Lloyds plans to raise £21 billion through a £13.5 billion rights issue and a £7.5 billion swap of debt into “contingent capital”, which converts into loss-absorbing equity if Lloyds’s finances deteriorate.

The Treasury confirmed that it would pay £5.7 billion to participate in the rights issue to maintain its 43 per cent holding.

Lord Myners hailed the plan as significant progress for Lloyds, saying that it “raised the prospect in due course of the shares [the Government’s holding] returning to full public ownership”. Lloyds shares rose 3 per cent to 87.33p as the bank also gave a positive update about the business, saying impairments had “peaked”.

The picture for RBS is starkly different. It will also stay within the APS because the Treasury and regulators believe that its assets are riskier and more volatile than those of Lloyds and that it requires the insurance.

The terms of the deal have changed significantly since they were outlined in February. RBS must pay a much higher “first loss” on its insured assets, but it can exit the APS early and pay an annual fee rather than a facing a £16 billion up-front cost. The Government’s economic interest in RBS rises to 84 per cent as it will pump in £25.5 billion in “B” shares, although its voting rights are capped at 75 per cent. The Government is also making available £8 billion in contingent capital, which can be drawn on if RBS’s core Tier 1 ratio falls below 5 per cent.

A host of investment banks have worked on the plans for RBS and Lloyds. UBS has advised both banks and Morgan Stanley, Bank of America Merrill Lynch and Citigroup have been involved. UBS and Merrill will lead underwrite Lloyds’ rights issue. Credit Suisse has advised the Treasury.

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