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UK banks' £37bn bail-out unveiled UK banks' £37bn bail-out unveiled
(about 1 hour later)
The government is to inject up to £37bn of taxpayer cash into Royal Bank of Scotland (RBS) Lloyds TSB and HBOS.The government is to inject up to £37bn of taxpayer cash into Royal Bank of Scotland (RBS) Lloyds TSB and HBOS.
RBS is to raise £20bn, with chief executive Sir Fred Goodwin quitting the firm after his bank was forced to go to the Treasury for the bail-out.RBS is to raise £20bn, with chief executive Sir Fred Goodwin quitting the firm after his bank was forced to go to the Treasury for the bail-out.
A further £17bn will be put into HBOS and Lloyds TSB. Barclays intends to raise £6.5bn without government help.A further £17bn will be put into HBOS and Lloyds TSB. Barclays intends 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.The plans mean taxpayers will own about 60% of RBS and 40% of the merged Lloyds TSB and HBOS.
The Treasury investment in the banks forms part of the government bail-out announced last week.The Treasury investment in the banks forms part of the government bail-out announced last week.
'Not permanent' It's not wrong to call it nationalisation but it's very different from Northern Rock. Shareholders will continue to own a big chunk of the banks Robert PestonBBC Business Editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/">Read Robert's blog class="" href="/1/hi/business/7666625.stm">Treasury's statement in full 'Not permanent'
It's not wrong to call it nationalisation but it's very different from Northern Rock. Shareholders will continue to own a big chunk of the banks Robert PestonBBC Business Editor Read Robert's blogTreasury's statement in full
BBC business editor Robert Peston said the announcement would "count as perhaps the most extraordinary day in British banking history" and was "an absolute humiliation" for the banks.BBC business editor Robert Peston said the announcement would "count as perhaps the most extraordinary day in British banking history" and was "an absolute humiliation" for the banks.
London's FTSE 100 index rose by about 5% as investors reacted to the news - with banks among the winners.London's FTSE 100 index rose by about 5% as investors reacted to the news - with banks among the winners.
The Treasury insisted that the government was "not a permanent investor in UK banks". Prime Minister Gordon Brown said the bail-out was: "unprecedented but essential for all of us", and would thaw frozen money markets.
"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. BANKS AND THEIR BAIL-OUTS RBS - £20bnHBOS - £11.5bnLloyds TSB - £5.5bn
The investments were assets and, "not just money being pumped in", he added, saying the government was: "not a permanent investor in UK banks".
"Its intention, over time, is to dispose of all the investments it is making as part of this scheme in an orderly way," Mr Brown said.
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.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.
RBS and Lloyds TSB/HBOS will also return mortgage and small-business lending to 2007 levels, which is much more than they are currently lending.RBS and Lloyds TSB/HBOS will also return mortgage and small-business lending to 2007 levels, which is much more than they are currently lending.
"This is hugely significant given that a shortage of credit is to a large extent behind the economy's deceleration into recession levels," our business editor said."This is hugely significant given that a shortage of credit is to a large extent behind the economy's deceleration into recession levels," our business editor said.
FROM THE TODAY PROGRAMME More from Today programmeFROM THE TODAY PROGRAMME More from Today programme
Dividend cancelledDividend cancelled
The government will buy £5bn of preference shares in RBS and another £15bn of ordinary shares if, as many expect, the bank is unable to find willing private investors.The government will buy £5bn of preference shares in RBS and another £15bn of ordinary shares if, as many expect, the bank is unable to find willing private investors.
"It's immensely regretful we're coming to shareholders to raise funds again, it's something we feel bad about," said RBS chairman Sir Tom McKillop."It's immensely regretful we're coming to shareholders to raise funds again, it's something we feel bad about," said RBS chairman Sir Tom McKillop.
HBOS will raise £11.5bn from taxpayers, made up of £8.5bn in ordinary shares and £3bn in preference shares, while Lloyds TSB is to get £5.5bn.HBOS will raise £11.5bn from taxpayers, made up of £8.5bn in ordinary shares and £3bn in preference shares, while Lloyds TSB is to get £5.5bn.
The money is conditional on the merger of the banks going through.The money is conditional on the merger of the banks going through.
Lloyds TSB and HBOS said the deal was still on, but that the terms had been renegotiated.Lloyds TSB and HBOS said the deal was 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.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 HBOS share they hold. Under the original deal they would have received 0.83 Lloyds TSB shares. Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every HBOS share they hold, valuing HBOS at around £6.9bn.
Under the original deal they would have received 0.83 Lloyds TSB shares.
'No Rock''No Rock'
Barclays has said it is to raise £6.5bn of new capital. The bank is to raise the money from private investors, rather than going to the government.Barclays has said it is to raise £6.5bn of new capital. The bank is to raise the money from private investors, rather than going to the government.
Barclays also said it would scrap its final dividend payout for 2008, saving it £2bn.Barclays also said it would scrap its final dividend payout for 2008, saving it £2bn.
Our business editor said it was not wrong to describe the part-ownership of RBS, Lloyds TSB and HBOS as nationalisation, but the situation was very different from Northern Rock and Bradford and Bingley, which had seen private investors lose their holding.Our business editor said it was not wrong to describe the part-ownership of RBS, Lloyds TSB and HBOS as nationalisation, but the situation was very different from Northern Rock and Bradford and Bingley, which had seen private investors lose their holding.
"Shareholders will continue to own a big chunk of the banks," he said."Shareholders will continue to own a big chunk of the banks," he said.