U.K. reportedly poised to invest in banks
Move may prompt suspension of London trading, report says
By Rex Nutting & Sam Mamudi, MarketWatch
Last update: 12:46 p.m. EDT Oct. 12, 2008
NEW YORK (MarketWatch) -- The U.K. government is finalizing plans to invest billions of pounds in four of the country's largest banks, according to media reports.
The moves may see the government taking majority stakes in Royal Bank of Scotland Group (RBS
royal bk scotland group plc sp adr rep shs
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RBS) and HBOS Plc (UK:HBOS: news, chart, profile) .
An announcement about the deals is aimed for 7 a.m. Monday, The Wall Street Journal reported on its Web site Sunday. The scale of the fundraising could lead to trading at the London stock market being suspended, reports said.
The U.K. is expected to invest 12 billion pounds ($20 billion) in RBS, 10 billion pounds in HBOS, 7 billion pounds in Lloyds TSB Group PLC (UK:LLOY: news, chart, profile) and 3 billion pounds in Barclays PLC (UK:BARC: news, chart, profile) , after receiving urgent requests from the banks for funding, according to the Sunday Telegraph.
Lloyds TSB said on Sept. 18 that it would merge with HBOS in a deal that would create the largest retail bank, mortgage lender and life insurance provider in the U.K.
The Sunday Times said that RBS will ask the government to underwrite a 15 billion pounds cash call.
The moves could see the U.K. government owning 70% of HBOS and 50% of RBS, said the Sunday Times. That would mean it could take board seats and control dividend payments at both companies, the newspaper said.
Recapitalizations would likely lead to discussions of executive departures, including that of Sir Fred Goodwin, chief executive officer of RBS, The Wall Street Journal said. It said there had been steps taken to identify a replacement for Goodwin. An RBS spokesperson declined comment.
Bank of England Governor Mervyn King told the banks to ask for more than they need, the Sunday Times said. The Treasury has increased the total amount available to banks to 75 billion pounds from the 50 billion pounds it had announced Wednesday.
"This is not an optional extra. It is imperative [other countries] get on with it. There is a very clear sense that governments need to act now," said U.K. Chancellor Alistair Darling. "This is a necessary step towards stabilization."
The recapitalizations are part of a broader effort announced earlier this week by the U.K. government to stabilize its banking system.
In addition to injecting tens of billions of pounds into the banks, the government said it will provide 250 billion pounds to guarantee bank debt maturing in up to 36 months.
A program run by the Bank of England that allows banks to exchange securities for government bills has also been doubled from 100 billion pounds to 200 billion pounds.
News of the U.K. recapitalizations came as global financial leaders met in Washington to endorse a plan put forward Friday by the Group of Seven to backstop the financial system with injections of public funds directly into banks and into bank deposit insurance. See full story.
The U.S. is working to unveil its bank recapitalization plans, Treasury Secretary Henry Paulson said Friday. See text of statement.
Germany was reportedly set to unveil a plan to shore up its own banks' capitalization. See full story.
Other nations, including France and Australia, were similarly reported to be rolling out emergency financial measures of their own.
