£37bn government bail-out for UK banks
THE Treasury is to bail-out four of the UK’s leading banks with a £37bn cash injection.
Royal Bank of Scotland (RBS) is to raise £20bn, with chief executive Sir Fred Goodwin quitting the firm.
A further £17bn of taxpayer cash will be injected into HBOS and Lloyds TSB. Barclays has announced plans to raise £6.5bn without government help.
The plans mean taxpayers will own about 60% of RBS and 40% of the merged Lloyds TSB and HBOS.
As a condition of the deal, the government has insisted that senior directors should get no cash bonuses this year, with future bonuses to be paid in the form of shares – a move aimed at encouraging management to take a more long-term approach.
The Treasury denied however that the Government will be a permanenmt investor in UK banks despite its actions.
“Its intention, over time, is to dispose of all the investments it is making as part of this scheme in an orderly way,” it said.
The Government will buy £5bn of preference shares in RBS and another £15bn of ordinary shares if the bank is unable to find willing private investors.
Lloyds TSB and HBOS confirmed that their merger is still on, but that the terms had been renegotiated.
A £12.2bn deal was agreed last month, but the value of HBOS shares has since plunged and the extent of the recapitalisation has highlighted its weakness.
Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every 1 HBOS share. Under the original deal they would have received 0.83 Lloyds TSB shares.
It was confirmed this morning that Stephen Hester of British Land, is to join Royal Bank of Scotland as its new chief executive.
Reacting to the Government’s announcement Richard Lambert, the CBI’s director-general, said: “This is an historic day for British capitalism that will result in a fundamental change in the structure of the banking system.
“It is also an important and necessary step to recapitalise our major banks. Very significantly, one condition of the deal is that the banks will undertake to maintain lending to small and medium-sized companies, and for mortgages, at the levels of 2007, which is good news for business and individuals.”
