The government is to pump about £50bn into three of the country’s largest banks in a broad-based recapitalisation that could see it end up with a controlling 60% stake in Royal Bank of Scotland and 40% stake in the merged Lloyds TSB/ HBOS. The terms of the Lloyds/ HBOS merger will be renegotiated.
A Treasury team led by Alistair Darling, chancellor, and Paul Myners, the City minister, was locked in talks with executives from RBS, HBOS and Lloyds TSB to hammer out details of the partial nationalisation of the banks before the markets reopen today. Barclays also held discussions, but wants time to raise its own capital first.
Unlike the plans announced last Wednesday – which would have given the government non-voting preference shares – this bail-out would see the state’s taking large voting stakes via ordinary shares.
This change was needed because regulations restrict the amount banks such as RBS and HBOS can raise through preference shares.
The negotiations come after the Treasury, the Bank of England and the Financial Services Authority last week accelerated their efforts to end questions about the safety of British banks following continued turmoil in the stock and credit markets.
Under the plans being discussed, RBS to raise as much as £20bn in fresh capital. Of this, £15bn is expected to come in the form of a placing of ordinary shares with the government at a price of about 65p a share – compared with £5.46 a year ago and a closing share price on Friday of 71.70p – with the remainder in the form of preferred shares.
Existing RBS investors would be given an opportunity to buy the ordinary shares but if they did not the government would be left with a controlling stake.
BBC, Financial Times, The Times, Daily Telegraph