(AFP) – Oct 12, 2008
LONDON (AFP) — The British government will announce plans Monday to take controlling stakes in Royal Bank of Scotland and HBOS, two of the banks worst affected by the financial crisis, reports said.
The unprecedented move would make the government the biggest shareholder in the banks and government representatives could be installed on their boards, the Sunday Times and Sunday Telegraph newspapers reported.
The scale of the operation could lead to suspending trading in the banks on the London stock market to allow traders to digest the news, the reports said.
A banking source told AFP that four banks -- RBS, HBOS, Lloyds TSB and Barclays -- will announce before markets open Monday they are taking up the offer of the government's bailout package, announced last Wednesday.
British finance minister Alistair Darling told the BBC he had spent the weekend locked in talks and would "be making an announcement at the beginning of the week."
Prime Minister Gordon Brown, in Paris for emergency talks on the crisis with the leaders of the 15 eurozone countries, refused to comment.
The banks also declined to comment, but reports said RBS and HBOS would be the first to accept an injection of government money in return for shares, known as re-capitalisation.
HBOS is in merger talks with Lloyds TSB, but Sky News television reported late Sunday that the deal had collapsed. Both banks denied the report, with HBOS telling AFP that negotiations remained "on track."
The 50-billion-pound (64-billion-euro, 87-billion-dollar) re-capitalisation plan, which would effectively see the banks part-nationalised, was the most eye-catching feature of last week's three-part rescue package.
The plan also makes available 450 billion pounds in cash for banks and guarantees to encourage banks to start lending to each other again, a crucial function for the world economy.
The Sunday Times said RBS, which has seen its shares plummet by about 80 percent since the credit crunch began, would ask the government for 15 billion pounds in return for a controlling stake.
HBOS, which is Britain's biggest home loan provider, will ask for 10 billion pounds, the newspaper said, in its unsourced report.
The move would leave the government owning 70 percent of HBOS and 50 percent of RBS, the Sunday Times said.
Reports said that discussions over the weekend focused on what strings would be attached to the money. It could see the government having extensive voting rights within the banks it bails out.
One of the consequences of the re-capitalisation could be the departure of RBS chief executive Fred Goodwin, reports suggest.
Vince Cable, finance spokesman for the opposition Liberal Democrats, told the BBC Sunday that ministers may want to ensure "some of the top managers are removed who got the banks into this position in the first place."
The British government has already nationalised two smaller banks, Northern Rock and Bradford and Bingley.
The markets will be watching closely after the FTSE 100 in London plunged 21 percent during last week, its biggest weekly fall since the crash of 1987, with banking shares particularly hard-hit.
The British bailout package looks set to be copied around the world.
Brown explained his plans to the leaders of the 15 eurozone countries in Paris, and they afterwards issued a joint statement pledging to underwrite inter-bank loans and safeguard financial institutions from collapse.
France will put forward legislation Monday to copy at least one part of the British package, Portugal announced a similar plan Sunday and the US and German authorities are also reportedly using it as a blueprint.
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