This article has been adapted from our sister site across the pond, Fool U.K.
Thanks to the credit crunch which began in August 2007 and the ensuing economic recession, Britain's banks went from corporate heroes to zeroes.
Lax lending to homeowners and businesses spawned massive bad debts, forcing taxpayers to bail out or rescue Britain's biggest banks. Only HSBC (NYSE: HBC) and Barclays (NYSE: BCS) made it through the hurricane without government bailouts.
It's payback time
The two biggest recipients of taxpayers' generosity were Lloyds Banking Group (NYSE: LYG) and Royal Bank of Scotland (NYSE: RBS). Our £17.4 billion bung to Lloyds bought us 41% of the bank, while the £45.2 billion injected into RBS gave us an 84% stake.
Of course, there's a price to be paid for these bailouts. In order to shrink their balance sheets and boost their capital ratios, and to satisfy European Commission rules on state aid, Lloyds and RBS have had to put various assets up for sale.
RBS has put 318 of its branches (plus its Williams & Glyn brand) on the block with a price tag of around £2 billion. The front-runner to buy these branches is Spanish bank Santander (NYSE: STD). Following detailed due diligence, Santander is believed to have lowered its bid to around £1.8 billion ahead of today's deadline for bids.
Lloyds to flog 600 branches
Likewise, Lloyds has put 600 of its branches -- accounting for 5% of the retail-banking market -- up for sale. The estimated price tag is said to be £3 billion to £4 billion, which rules out all but the biggest financial-services firms.
Although Lloyds has been given until November 2013 to sell this asset, getting a premium price for bank branches is tough in today's market. Hence, one alternative being considered by Lloyds (according to the Sunday Times) is for the bank to float these 600 branches as a separate company on the London Stock Exchange.
This stock market flotation would create an offshoot dubbed "son of Lloyds," while neatly sidestepping the problems involved in trying to find a trade buyer during the euro-zone debt crisis. However, someone would have to show some interest in this new bank's shares. Thus, Lloyds may well follow in Ocado's footsteps by offering shares direct to the public.
If you see Sid ...
Lloyds has appointed investment banks Merrill Lynch and UBS to look into this "Plan B," which would require Lloyds to fund the new firm until it is strong enough to go it alone.
In summary, it may well be that the public will be bribed with discounted shares in order to buy into this mini-Lloyds. Does anyone want to buy second-hand chunks of TSB Scotland, Cheltenham & Gloucester, Intelligent Finance, and £65 billion of home loans?
If you see Sid, tell him to do his own research before buying!
More from Fool U.K.'s Cliff D'Arcy:
