£12.7m short London Scottish to quit lending

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It will exit all its lending divisions, which include unsecured consumer credit, secured lending, mortgages and factoring. They could be put up for sale if that either preserves or creates shareholder value and will all have less capital devoted to them.

The move will leave London Scottish with a small, profitable debt collection business, Robinson Way.

LSB said it had finally agreed with the FSA that it is short of regulatory capital to the tune of £12.7 million and it has drawn up a plan with the regulator to address the black hole. But it did not spell out exactly howit would be raising new finance.

The bank swung from profits of £15.5 million to losses of £5.6 million as it took a total writedown, mainly on its unsecured lending business, of £38.3 million. It also wrote off £18 million of goodwill, which left it with a pre-tax loss of £18 million in 2007 against profits of £15 million in 2006.

LSB said first-quarter losses for the current year had soared to £3.8 million compared with profits of £1.8 million the previous year. It will also spend £4 million on fees to the likes of investment bank NM Rothschild to sort out its problems.

Rothschild has already started the sale process for the factoring division and will begin considering potential offers for the other businesses shortly.