UK Govt to take control of two major banks

[Guest guest]

http://ca.news.yahoo.com/s/afp/081012/world/finance_banking_britain_hb

os_rbs

Govt to take control of two major banks Monday: reports

1 hour, 3 minutes ago

LONDON (AFP) - The 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 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 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 package, Portugal announced a similar plan Sunday and the US

and German authorities are also reportedly using it as a blueprint.