Partner Article

Four banks get billions in bail-out

The Treasury is to bail out four of the UK’s leading banks with a £37bn cash injection.

Royal Bank of Scotland (RBS) is to receive £20bn, with chief executive Sir Fred Goodwin quitting the firm. £17bn of taxpayer money will be given to HBOS and Lloyds TSB. Barclays has announced plans to raise £6.5bn without government help.

The plans mean the UK public will own about 60% of RBS and 40% of the merged Lloyds TSB and HBOS.

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. The Treasury denied however that the Government will be a permanent investor in UK banks despite its actions.

The Government will buy £5bn of preference shares in RBS and another £15bn of ordinary shares if the bank is unable to find willing private investors.

Lloyds TSB and HBOS confirmed that their merger is 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. Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every 1 HBOS share. Under the original deal they would have received 0.83 Lloyds TSB shares.

This was posted in Bdaily's Members' News section by Ruth Mitchell .