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Rescue plan for UK banks unveiled Rescue plan for UK banks unveiled
(31 minutes later)
The UK government has announced details of a rescue package for the banking system worth up to £50bn ($88bn).The UK government has announced details of a rescue package for the banking system worth up to £50bn ($88bn).
It will initially make the extra capital available to eight of the UK's largest banks and building societies in return for preference shares in them.It will initially make the extra capital available to eight of the UK's largest banks and building societies in return for preference shares in them.
It is "designed to put the British banking system on a sounder footing", said Prime Minister Gordon Brown.It is "designed to put the British banking system on a sounder footing", said Prime Minister Gordon Brown.
But the FTSE 100 in London fell 4%. HBOS shares rose 52% but Barclays fell 8% and Standard Chartered dropped 13%.But the FTSE 100 in London fell 4%. HBOS shares rose 52% but Barclays fell 8% and Standard Chartered dropped 13%.
Taking taxpayers' money will not be a licence to trade as normal Robert Peston, BBC business editor Read Robert Peston's blogTreasury statement in fullWorld in turmoil class="" href="/1/hi/business/7658478.stm">Parties support plan class="" href="/1/hi/business/7658286.stm">Latest at a glance class="" href="/1/hi/business/7658551.stm">Reaction to the plan Taking taxpayers' money will not be a licence to trade as normal Robert Peston, BBC business editor Read Robert Peston's blogTreasury statement in fullWorld in turmoil
The key points of the plan are:
  • Banks will have to increase their capital by at least £25bn and can borrow from the government to do so.
  • An additional £25bn in extra capital will be available in exchange for preference shares.
  • £200bn will be available in short-term loans from the Bank of England, up from £100bn.
  • Up to £250bn in loan guarantees will be available at commercial rates to encourage banks to lend to each other.
  • To participate in the scheme banks will have to sign up to an FSA agreement on executive pay and dividends.
The key points of the plan are:
  • Banks will have to increase their capital by at least £25bn and can borrow from the government to do so.
  • An additional £25bn in extra capital will be available in exchange for preference shares.
  • £200bn will be available in short-term loans from the Bank of England, up from £100bn.
  • Up to £250bn in loan guarantees will be available at commercial rates to encourage banks to lend to each other.
  • To participate in the scheme banks will have to sign up to an FSA agreement on executive pay and dividends.
Falling shares
BBC business editor Robert Peston explained the falls in banking shares.
He said that the huge amount of new capital the banks will have to take on will be expensive and that the message of the rescue plan is that they need it.
"So it may be good news that the Treasury is prepared to shore up their balance sheets, but it's pretty bad news that there's such a big hole to fill," he said.
He argued that HBOS shares had risen strongly because the rescue plan had brought it back from the brink to a greater extent than its peers.
Special companySpecial company
BANKS SIGNED UP AbbeyBarclaysHBOSHSBCLloyds TSBNationwide Building SocietyRoyal Bank of ScotlandStandard Chartered See banking sector sharesParties support planLatest at a glanceReaction to the plan
Much of the current crisis has been caused by the banks' unwillingness to lend to each other, so the government hopes that if those loans can be guaranteed then lending will resume.Much of the current crisis has been caused by the banks' unwillingness to lend to each other, so the government hopes that if those loans can be guaranteed then lending will resume.
BANKS SIGNED UP AbbeyBarclaysHBOSHSBCLloyds TSBNationwide Building SocietyRoyal Bank of ScotlandStandard Chartered See banking sector shares
"This is beginning a process of un-bunging a big problem where banks won't lend to each other for long periods," Mr Darling said."This is beginning a process of un-bunging a big problem where banks won't lend to each other for long periods," Mr Darling said.
The lenders that have confirmed they will take part in aspects of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.The lenders that have confirmed they will take part in aspects of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.
The Treasury said that other banks and building societies would be able to apply for inclusion in the plan.The Treasury said that other banks and building societies would be able to apply for inclusion in the plan.
Possible profitPossible profit
Protecting taxpayers money means the millions of people who own shares in the banks will lose out in the future, as the government has first call on any future profits Declan Curry, Presenter, BBC 2 Working Lunch Working Lunch special: How will the crisis affect you?, on BBC 2, 1330 UK time
Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.
Taxpayers may even end up making a profit from the shares, but that is by no means guaranteed.Taxpayers may even end up making a profit from the shares, but that is by no means guaranteed.
BBC business editor Robert Peston said there would be strings attached for banks that take the government money. Robert Peston said there would be strings attached for banks that take the government money.
"Taking taxpayers' money will not be a licence to trade as normal," he said."Taking taxpayers' money will not be a licence to trade as normal," he said.
Negotiations will take place with each participating institution that will require them to extend normal credit lines to homeowners and small businesses, in addition to rules on executive pay and dividends to other shareholders.Negotiations will take place with each participating institution that will require them to extend normal credit lines to homeowners and small businesses, in addition to rules on executive pay and dividends to other shareholders.
'Stop the panic''Stop the panic'
It is hoped that the deal will get the money markets going again and assure the future of the banking system.It is hoped that the deal will get the money markets going again and assure the future of the banking system.
"They've got additional capital now if they want it, they've got an unlimited source of liquidity," said Terry Smith, chief executive of the money brokers, Tullett Prebon."They've got additional capital now if they want it, they've got an unlimited source of liquidity," said Terry Smith, chief executive of the money brokers, Tullett Prebon.
"That certainly should stop the panic in terms of people wondering whether or not the banks are safe.""That certainly should stop the panic in terms of people wondering whether or not the banks are safe."
The deal has also been welcomed by the banks.The deal has also been welcomed by the banks.
"The government's announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system," HBOS said in a statement."The government's announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system," HBOS said in a statement.
Barclays, Lloyds TSB and RBS also issued statement welcoming it.Barclays, Lloyds TSB and RBS also issued statement welcoming it.
HSBC also welcomed the plan but said it did not intend to use the recapitalisation scheme.HSBC also welcomed the plan but said it did not intend to use the recapitalisation scheme.
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