UK banks set to unveil bailout plans

Click to follow
The Independent Online

Major British banks are likely to announce their plans to recapitalise early on Monday, a move which could see the government take multi-billion pound stakes in several lenders.



Banks were in crisis talks with the government and regulators on Sunday to determine how much capital each needs from the 50 billion pounds ($86 billion) offered by Britain last week.



An announcement is expected before the market opens on Monday but details are still being fine-tuned, said the source, who declined to be identified.



The Sunday Times said Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays could ask for a combined 35 billion-pound lifeline.



RBS may need at least 10 billion pounds, HBOS over 5 billion pounds and Lloyds and Barclays more than 3 billion apiece, according to industry sources and analysts' estimates.



That could result in the government becoming the biggest shareholder - and even a majority investor - in RBS and HBOS.



Earlier this year RBS shareholders had said Chief Executive Fred Goodwin he would need to step down if the bank sought to raise more cash.



The government could take seats on the boards of banks, a government source said on Saturday.



Lloyds, RBS, HBOS and Barclays all declined to comment.



British Finance Minister Alistair Darling, attending a G7 finance ministers' meeting in Washington, said on Saturday the government was to give more details early this week about its already announced 400 billion pound banking rescue plan.



The Sunday Times said the scale of the fund-raising could lead to trading at the London Stock Exchange being suspended to give the market time to digest the impact.



The LSE downplayed that prospect, however. "My information is that the market will open on Monday," a spokesman said.



RBS, which has seen its market value fall to below 12 billion pounds, is to ask ministers to underwrite a 15 billion pound cash call, the Sunday Times said.



HBOS, Britain's biggest provider of mortgages, was seeking up to 10 billion pounds, Lloyds wanted 7 billion pounds and Barclays needed 3 billion pounds, the newspaper said.



Barclays, Britain's second biggest bank, has said it is considering raising capital privately and is expected to try and raise funds from existing shareholders to limit any funds provided by the government.



Lloyds is in the process of buying HBOS and the fundraising could see Lloyds renegotiate the terms of the deal, although both sides were still keen for the merger to go ahead, the Sunday Times said.



Banks were in talks over the weekend with the Treasury, the Financial Services Authority and the Bank of England. The scale of the cash required by each will depend on estimates of more losses from their exposure to subprime mortgages and other financial instruments, the source said.



Capital is the cushion a bank keeps to protect its depositors against losses. Many banks ran down their capital in recent years amid a benign economic backdrop, but have been hit by big losses in the last year and now need to recapitalise in the face of an economic recession.



Last week's multi-billion pound package was aimed at stabilising banks and getting them lending again, but it failed to halt a collapse in share prices.



The package included a 50 billion pound cash injection, guaranteeing interbank lending by 250 billion sterling to help unfreeze wholesale markets, and extending a Bank of England scheme that swaps banks' risky assets for government debt to provide 200 billion pound of cash to the system.



RBS could need to raise 10 billion pounds to rebuild its capital, analysts at Credit Suisse said on Friday. Dresdner analysts also estimated RBS needs about 10 billion pounds and other analysts have predicted it could need more.



Barclays and HBOS will each raise about 5 billion pounds and Lloyds needs about 4 billion, Credit Suisse said.



RBS shares fell over 60 percent last week and it and HBOS have lost more than three-quarters of their value this year. The broader European bank index has halved this year as fears that more banks will fail have been stoked by the deepening financial crisis and prospect of recession.

Comments