The Rescue Bid and What It Means
The Governments Emergency Rescue Package will mean changes in our banking sector:
RBS
The bank will be majority-owned by the UK government in return for up to £20bn of fresh capital. Chief executive Sir Fred Goodwin is being replaced by Stephen Hester and the chairman, Sir Tom McKillop, will retire early next year.
RBS will raise £5bn from the government by issuing preference shares. It is also issuing £15bn of new ordinary shares which will be underwritten by the government. If the government takes up the full allocation it will own up to 60% of RBS.
Shareholders will not receive a dividend until the government's preference shares have been repaid. The board will not receive a bonus this year, and any bonuses earned in 2009 will be paid in shares.
Shares in RBS have slumped by 85% in the last year.
Lloyds TSB
The government had agreed to buy £1bn of preference shares, and Lloyds will also raise £4.5bn through a rights issue which is underwritten by the government.
Lloyds has also forced HBOS to accept a lower price and this values HBOS at around £6.9bn. Unless other investors step in, the government will be left owning 43.5% of the enlarged bank. Existing Lloyd’s shareholders will own 36.5%.
It pledged to continue using HBOS's site on The Mound as its Scottish Headquarters, to keep holding its AGM in Scotland and to continue to print Bank of Scotland notes.
Shares in Lloyds TSB have fallen around 63% in the last 12 months.
HBOS
HBOS had little choice but to accept a lower offer from Lloyds TSB.
It will receive £11.5bn from the government - £3bn in preference shares and £8.5bn through a rights issue. The government's preference shares will be converted into Lloyds TSB shares once the merger goes through.
Shares in HBOS have nosedived by 90% in the last year.
Barclays
The Treasury had been expected to take a stake in Barclays. However, the bank said today it hopes to raise £9.5bn in fresh capital from investors without government help.
Under a plan that has been approved by the FSA, Barclays wants to raise more than £6.5bn through a series of new share issues, underwritten by the government, and at least a further £3.5bn through scrapping its dividend and other measures.
In a blow to shareholders, Barclays is axing its annual dividend for this year
If Barclays fails to raise capital from investors, it can call on the government for funding.
Shares in Barclays have dropped more than 60% over the past 12 months.
Alliance & Leicester/Abbey
Although it is not part of the UK government's rescue bid, Spanish bank Santander has agreed to invest £1bn in its UK operations. It also owns Abbey and Alliance & Leicester. The injection will improve the ratios by 1.25 percentage points. Santander also recently agreed to buy Bradford & Bingley's branches and deposits.
HSBC
HSBC said it would not be seeking government help as it had strengthened its capital base last week with an equity injection of £750m. The injection, funded through the group's own resources, represented 1% of the total shareholder equity of the HSBC group.
It added that it is doing its bit to stabilise the financial markets by providing "significant amounts of liquidity" to the London sterling interbank market ¬— lending around £4bn of three-month and six-month money to other banks — and said it hoped others would follow suit.
Standard Chartered
Standard Chartered bank also announced that it had met the capital requirements set out in last week's scheme and said it would continue to do so.
Nationwide
Nationwide is also not turning to the government for help. Britain's biggest building society insisted today that is has no need for additional funds, but has agreed to support the government's plan by raising £500m in fresh capital.
www.theguardian.co.uk
(Tuesday, October 14, 2008)