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UK banks 'forced to seek £50bn' UK banks 'forced to seek £50bn'
(about 5 hours later)
Up to £50bn of taxpayers' cash is to be injected into four of Britain's biggest banks through the government's rescue package, the BBC has learned.Up to £50bn of taxpayers' cash is to be injected into four of Britain's biggest banks through the government's rescue package, the BBC has learned.
Royal Bank of Scotland (RBS), HBOS, Lloyds TSB and Barclays are being told by Treasury officials to seek the cash to shore up their balance sheets. Royal Bank of Scotland (RBS), HBOS, Lloyds TSB and Barclays is to sell off shares, the majority of which the government is expected to buy.
An announcement is planned before the markets open on Monday, according to BBC business editor Robert Peston. If the government ends up owning more than half of RBS and HBOS, it will be an effective nationalisation.
Meanwhile, Lloyds TSB wants the terms of its HBOS takeover renegotiated. More details of the deals are expected to be announced later.
It wants to secure the buyout for a smaller fee, given that HBOS - owner of the Halifax - is being forced by the government to raise as much as £12bn.
A £12.2bn deal was agreed last month but the value of HBOS shares has since plunged and the extent of the recapitalisation highlights its weakness.
Both companies insisted on Sunday evening the deal is "still on" but HBOS shareholders are expected to do less well.
Under pressureUnder pressure
On top of the cash to be raised by HBOS, Mr Peston said RBS is likely to get in the region of £20bn and Lloyds TSB about £5bn. BBC business editor Robert Peston said RBS is likely to get in the region of £20bn and Lloyds TSB about £5bn.
Barclays was under pressure from the Treasury, Bank of England and Financial Services authority to raise up to £8bn, he added. Barclays was under pressure from the Treasury, Bank of England and Financial Services authority to raise up to £8bn, while HBOS had been told it needed as much as £12bn, he added.
The investment is part of the £500bn plan to rescue Britain's banks which was announced last week.The investment is part of the £500bn plan to rescue Britain's banks which was announced last week.
The government is not expected to insist on having its own appointees on the boards of the banks, although other strings are likely to be attached.The government is not expected to insist on having its own appointees on the boards of the banks, although other strings are likely to be attached.
A key aspect of the announcements will be what the government requires the banks to do in return for the cash.
What a sorry end to Britain's longest ever period of unbroken economic growth Robert Peston, BBC business editor Read Robert Peston's blogWhat a sorry end to Britain's longest ever period of unbroken economic growth Robert Peston, BBC business editor Read Robert Peston's blog
These could involve curbing executive pay and resuming normal lending to individuals and small businesses.These could involve curbing executive pay and resuming normal lending to individuals and small businesses.
The government has said that it will negotiate terms individually with each bank that participates in the scheme.The government has said that it will negotiate terms individually with each bank that participates in the scheme.
The cash will be sought by the banks in the form of shares which could be bought by private investors.
Barclays, for example, is expected to announce they will try to raise all the capital it needs from that source.
However, the government has promised to underwrite the issue - meaning if they are not bought, it will step in and buy them.
In the case of RBS and HBOS, the government is expected to be the major purchaser - giving it majority control of the banks.
"What we're doing now is talking with all of the banks about how we implement the programme," Yvette Cooper, chief secretary to the Treasury, told BBC1's The Andrew Marr Show."What we're doing now is talking with all of the banks about how we implement the programme," Yvette Cooper, chief secretary to the Treasury, told BBC1's The Andrew Marr Show.
"We'll set out the sort of strings that will be attached on a case-by-case basis," she added."We'll set out the sort of strings that will be attached on a case-by-case basis," she added.
"What we're doing over the weekend is looking at specifics," Alistair Darling, chancellor of the exchequer, told the BBC in Washington after talks with President Bush and other G7 finance ministers on Saturday."What we're doing over the weekend is looking at specifics," Alistair Darling, chancellor of the exchequer, told the BBC in Washington after talks with President Bush and other G7 finance ministers on Saturday.
"We'll be making an announcement at the beginning of the week," he added. What the banks need RBS - £20bnLloyds TSB - £5bnBarclays - £8bnHBOS - £12bn
Voting rights
The chief executive of RBS, Sir Fred Goodwin, is expected to resign to be replaced by Stephen Hester, the former finance director of Abbey who is currently chief executive of British Land.The chief executive of RBS, Sir Fred Goodwin, is expected to resign to be replaced by Stephen Hester, the former finance director of Abbey who is currently chief executive of British Land.
Earlier in the year, RBS raised £12bn from its shareholders, which is now more than the bank is worth on the stock exchange.Earlier in the year, RBS raised £12bn from its shareholders, which is now more than the bank is worth on the stock exchange.
Banks trying to raise new capital as part of the scheme may choose to approach their own shareholders again instead of taking part of the government's £50bn. Meanwhile, Lloyds TSB in renegotiating the terms of its HBOS takeover to secure the buyout for a smaller fee.
If they go to their existing shareholders for funding, the government has said it will underwrite the issues, which means that if all of the shares on offer are not sold then it will step in and buy them. A £12.2bn deal was agreed last month but the value of HBOS shares has since plunged and the extent of the recapitalisation highlights its weakness.
That means that the government could end up owning large stakes in the banks and having extensive voting rights. Both companies insisted on Sunday evening the deal is "still on" but HBOS shareholders are expected to do less well.
Hefty fallsHefty falls
This would be different to the preference shares that the government would get for additional capital. The deal with Royal Bank of Scotland (RBS), HBOS, Lloyds TSB and Barclays will leave the government holding a mixture of normal and preference shares.
The difference is that normal shares carry voting rights while preference shares do not, but preference shareholders, as the name suggests, get access to any money that a company makes before the normal shareholders.The difference is that normal shares carry voting rights while preference shares do not, but preference shareholders, as the name suggests, get access to any money that a company makes before the normal shareholders.
If the agreements are reached ahead of trading on Monday morning, it will be just another factor for investors to take into account following the huge falls on stock markets last week. The deals come following huge falls on stock markets last week.
The FTSE 100 in London fell 21.1% during the week, its worst weekly fall since the crash of 1987.The FTSE 100 in London fell 21.1% during the week, its worst weekly fall since the crash of 1987.
The Dow Jones in New York fell 18% in the week while the Dax in Frankfurt fell 21.6%.The Dow Jones in New York fell 18% in the week while the Dax in Frankfurt fell 21.6%.