Rescue plan for UK banks unveiled

[Ghost Dog]

Source: BBC

Page last updated at 06:55 GMT, Wednesday, 8 October 2008 07:55 UK

The UK government has announced details of a rescue package for the banking system worth at least £50bn. It will initially make the extra capital available to eight of the UK's largest banks and building societies. In return for the funding, the government will receive preference shares in those institutions.

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As part of the package, a further £200bn will be made available by the Bank of England for short-term borrowing to provide liquidity to banks and building societies.


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The banks that have confirmed they will take part in the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.

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BBC business editor Robert Peston said there would be strings attached for banks that take the government money. These will include restrictions on executive pay and dividends for other shareholders. "Taking taxpayers' money will not be a licence to trade as normal," he said.

Read more: http://news.bbc.co.uk/2/hi/business/7658277.stm

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Treasury Statement in full: http://news.bbc.co.uk/2/hi/business/7658307.stm

BBC's Preston comments: http://www.bbc.co.uk/blogs/thereporters/robertpeston/

[nadinbrzezinski]

1. Similar to what is going on HERE

and pay attention guaranteed lending between banks... if this works the LIBOR should drop

[Oregone]

3. Will you "eat crow" if this all doesn't work so well, seen in a years time?

You seem incredibly "optimistic" about these bailout plans.

Im....just not sure. There are a lot of global governments working out of sync, trying to play catch-up. Im just absolutely not sure what the hell is going to happen.

[nadinbrzezinski]

6. I am only optimistic if they are combined with a lot of other steps

that said... I will eat crow if this is a depression... yes definitions matter

See I see this as a FIRST STEP... but cannot be the ONLY STEP

In fact, the next step was hinted today during the debate... if you listened carefully Obama hinted at a WPA like program, without the scary letters

[vaberella]

4. Similar, but the game changer is the fact that Britain isn't afraid of nationalizing.

They will do it if they have to. America is extremely reluctant in pursuing that mainly started with our fear of communism and socialism. Eventually the safest thing will be nationalizing this system until it can work on it's own again and we drain out the dirty players as much as possible.

[nadinbrzezinski]

7. We did during the depression... we will do it again

the TARP is a partial and AIG was outright

[T_i_B]

12. Actually, the UK government is loathe to nationalize

Nationalization to many over here is synonymous with all that went wrong in the 1970's and the first thing Blair did when he became Labour leader was to remove Labour's commitment to public ownership. The government is only nationalizing because it has to to protect savers. The alternative of letting banks go to the wall is far worse and the government is desperate to avoid a run on a bank as happened with Northern Rock.

And to underline the point, I have heard a Labour MP holding forth on the subject at a football match a few weeks ago and he was delighted that HBOS were being taken over by Lloyds TSB as it meant that the government avoided another nationalization of a crippled bank.

[vaberella]

2. Well both my banks are up there...damn. I trust them too.

Those banks will nationalize if anything. Britain isn't afraid of doing that unlike the US.

[Ghost Dog]

5. Britain pumps cash into banks as Hong Kong slashes rates

For a little more detail, comment...

Wed Oct 8, 2008 8:06am BST LONDON/HONG KONG (Reuters) - Britain announced plans to inject up to 50 billion pounds in capital into its biggest retail banks on Wednesday and Hong Kong slashed interest rates to try to stem the global financial crisis.

In an effort to kickstart stalled money markets, the Bank of England would offer at least 200 billion pounds in further short-term liquidity.

Hong Kong followed Australia's lead in slicing a full point off interest rates as pressure grew for a coordinated, global monetary policy response to the biggest financial crisis since the Great Depression.

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"Extraordinary times call for bold and far-reaching solutions," British Prime Minister Gordon Brown will say at a news conference later on Wednesday, according to extracts released by Brown's press office.

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Hong Kong unveiled a 100 basis point rate cut on Wednesday, a day after Australia made its steepest cut in 16 years.

Kirby Daley, senior strategist at Newedge Group in Hong Kong, said central banks should act in a concerted effort to back the interbank lending market, which has all-but frozen. He called the Fed's move on Tuesday to buy commercial paper a good first step, but said the outlook remains grim. "We're sitting between the abyss, which is the unthinkable, which is the breakdown of the financial system, or a deep and sustained recession, that will cause lower equity valuations to persist for the next 12 to 18 months," he said.

In the latest sign of gloom in the real economy, corporate bankruptcies in Japan jumped 34.5 percent during September from a year earlier, a research firm said.

"The primary thing the market is focussed on is getting some sort of coordinated bailout plan done across Europe, possibly involving Japan and the U.S. Until we get that, the market's going to remain pretty nervy," said Andrew Quin, research strategy coordinator for Paterson Securities in Australia.

/... http://uk.reuters.com/article/businessNews/idUKTRE4961YE20081008?sp=true

[Ghost Dog]

8. HSBC says no plans to use UK govt capital offer

Wed Oct 8, 2008 3:28am EDT LONDON, Oct 8 (Reuters) - Europe's biggest bank HSBC Holdings (HSBA.L: Quote, Profile, Research, Stock Buzz) said it had no plans to use a UK government offer to recapitalise as it can keep a strong capital position through its own resources. "HSBC has no current plans to utilise the UK recapitalisation programme initiative announced today. We do agree to observe the tier 1 capital requirements, but we will do this through our own resources," a spokesman said.

HSBC has one of the strongest capital and liquidity positions in the industry, with a tier 1 capital ratio of 8.8 percent and a loans/deposits ratio of 90 percent.

/... http://www.reuters.com/article/marketsNews/idUSWLB217120081008

[conspirator]

11. I am glad HSBC is my bank nt

[Ghost Dog]

9. Europe shares plunge in early trade as banks slide

Wed Oct 8, 2008 3:26am EDT LONDON, Oct 8 (Reuters) - European shares tumbled 4 percent in early trade on Wednesday, led lower by banks, as investors across the globe dumped shares amid mounting jitters about the financial system and a deep recession. At 0721 GMT, the FTSEurofirst 300 index of top European shares was down 4.1 percent at 962.47 points after hitting a four-year low of 959.60.

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Banks were the hardest hit, with UniCredit (CRDI.MI: Quote, Profile, Research, Stock Buzz) down 10 percent, Dexia (DEXI.BR: Quote, Profile, Research, Stock Buzz) falling 10.3 percent and Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) slipping 6.7 percent.

Commonwealth Bank (CBA.AX: Quote, Profile, Research, Stock Buzz) agreed to buy struggling British bank HBOS's (HBOS.L: Quote, Profile, Research, Stock Buzz) Australian unit BankWest and other assets for a cheap A$2.1 billion ($1.5 billion). HBOS rose 20 percent.

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Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) jumped 9.8 percent but Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) fell 6 percent and Lloyds (LLOY.L: Quote, Profile, Research, Stock Buzz) fell 2.4 percent.

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Spanish Prime Minister Jose Luis Rodriguez Zapatero late on Tuesday said Spain will raise its guarantee for deposits in its banks to 100,000 euros and set up a 30 billion euro fund to buy assets from banks and keep credit flowing to the economy.

/... http://www.reuters.com/article/marketsNews/idCAL863990320081008?rpc=44&sp=true

[muriel_volestrangler]

10. Comment: this is not nationalisation, but loans

Darling’s bail-out looks like capital but is a loan

The state bank bail-out is not nationalisation after all. The £50bn of preference shares the government is offering to buy looks like capital but, as any finance director knows, is really a loan. It protects the taxpayers’ money but there will be no windfall if banks’ fortunes soar again.

Eight big lenders have been told to raise £25bn of capital by Christmas and if they can’t raise it elsewhere, the government will subscribe. Another £25bn is there if banks want it.

But it will be in the form of preference shares (or, for Nationwide building society, Pibs – permanent interest-bearing shares). The government will “assist in the raising of ordinary capital if requested” – which sounds like underwriting – but when prefs count as capital for Basel’s Tier-1 ratios, expect the banks to go for the fixed-coupon paper or to offer new shares elsewhere.
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Darling will hardly want equity then tell the bank to cut its dividends. Preference shares will receive a full and fixed dividend, of course – but no upside when bank shares recover.

http://dofonline.co.uk/blogs/the-edge/markets/darling%E2%80%99s-bail-out-looks-like-capital-but-is-a-loan7744855547/