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Britain considering 35-billion-pound bank rescue

Latest update : 2008-10-12

The British government is considering a 35-billion-pound rescue of the country's four largest retail banks - HBOS, Royal Bank of Scotland, Lloyds TSB and Barclays - according to a Sunday Times report posted on its Web site.

Also read: Government to take control of two leading British banks

 

LONDON - Britain will launch its biggest retail bank rescue on Monday when the four largest, HBOS, Royal Bank of Scotland, Lloyds TSB and Barclays, ask for a combined 35 billion pound ($60.5 billion) lifeline, the Sunday Times reported.

The unprecedented move would make the government the biggest shareholder in at least two banks, HBOS and Royal Bank of Scotland, the newspaper said on its website. It did not give a named source for its information.

No government officials or representatives from the four banks were immediately available to comment on the report.

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 newspaper said Royal Bank of Scotland, which has seen its market value fall to below 12 billion pounds, was to ask ministers to underwrite a 15 billion pound cash call.

It said HBOS, Britain's biggest provider of mortgages, was seeking up to 10 billion pounds. Lloyds TSB, in the process of acquiring HBOS in a rescue merger, wanted 7 billion pounds, and Barclays needed 3 billion pounds, the newspaper said.

One consequence of the fund raising might be that Lloyds TSB could renegotiate the terms of the HBOS takeover, although both sides were still keen for the merger to go ahead, said the newspaper.

A government source told Reuters on Saturday the British government could end up with seats on the boards of major retail banks.

The Sunday Times said the bank rescue could leave the government owning 70 percent of HBOS and 50 percent of Royal Bank of Scotland, and as a result it could take board seats at both banks and exercise control over future dividend payments.

"This is the biggest risk of the UK's balance sheet ever undertaken. No one knows the extent of the toxic assets these banks are exposed to," an economist, who declined to be named, was quoted as saying in the newspaper.

Crisis talks were taking place this weekend between the Treasury, the Financial Services Authority, the Bank of England and heads of the four banks, the Sunday Times said.

It said the banks were likely to have to own up to future losses from their exposure to subprime mortgages and other financial instruments.

Last week, Britain unveiled a multi-billion pound package aimed at stabilising banks and getting them lending again.

The package of measures 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. ($1=.5786 Sterling)
 

Date created : 2008-10-12

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