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Rescue plan
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Government pledges £37 billion for Lloyds TSB, HBOS and RBS
Monday, 13 October 2008
Writes Hazel Cottrell hazel.cottrell@consumerchoices.co.uk
After a weekend of negotiations, the government confirmed this morning that it will inject £37 billion into three leading high-street banks, in an attempt to prevent a collapse of the UK banking system.
The government will take a 60% stake in The Royal Bank of Scotland (www.rbs.co.uk) in return for up to £20 billion of taxpayers’ money. The bank this morning revealed that the chief executive, Sir Fred Goodwin, is to resign.
Lloyds TSB (www.lloydstsb.co.uk), which also renegotiated its takeover of HBOS over the weekend, will receive up to £17 billion from the government. This means 40% of the new “superbank” will be held by the government on behalf of the public.
Alistair Darling said the dramatic move was necessary in the “extraordinary circumstances” which are affecting financial markets worldwide.
“I'm determined to do everything we can to stabilise our banking system and make it stronger,” the chancellor said. “And in return for it, of course, there will be restrictions on what happens in boardroom pay and we’re also getting guarantees in relation to increased lending to businesses, as well as to mortgages too.”
In exchange for the cash injection, RBS and Lloyds TSB have both agreed not to pay a dividend or any cash bonuses this year and to help people who are struggling with their mortgages. Also as part of the deal, the government will have the right to agree with boards the appointment of new independent non-executive directors.
The government claims that this rescue plan will stabilise the banking industry during global economic turmoil and support the long term strength of the UK economy.
The Treasury said in a statement: “The overall aim of these measures is to support stability in the financial system, to protect ordinary savers, depositors, businesses and borrowers, and to safeguard the interests of the taxpayer.”
Chris Eagle, commercial manager at CreditChoices.co.uk comments: “Together with Northern Rock and Bradford and Bingley, the implementation of this rescue plan will mean that the government effectively has control of four of the country’s biggest lenders. The move is dramatic and we can only hope that it does go some way to stabilise the troubled UK banking industry.”
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