The UK government may invest at least £45 billion ($79 billion) in banks including Royal Bank of Scotland Group Plc and Barclays Plc to bolster capital depleted by mortgage-related losses, two people with knowledge of the situation said.
Chancellor of the Exchequer Alistair Darling and Bank of England Governor Mervyn King met with banking chief executive officers including RBS’s Fred Goodwin and Barclays’s John Varley late yesterday to discuss the investment, said the people, who declined to be identified because the meeting was confidential.
RBS fell as much as 39 per cent after Standard & Poor’s cut the company’s credit rating for the first time in almost a decade, as the Edinburgh-based bank’s financial condition deteriorates. The government has already bailed out Bradford & Bingley Plc and brokered the takeover of HBOS Plc in the past month on concern about the banks’ ability to fund themselves. Darling said yesterday he will do “whatever it takes” to keep the financial system stable as capital markets remain frozen.
“The equity markets are saying RBS has the biggest problem but something needs to be done across the board. Otherwise RBS concern will simply move onto Barclays, said Simon Maughan, a London-based analyst at MF Global Securities. “Bond investor confidence in the banks is completely shot.”
Debt Repayments: RBS, Barclays, Lloyds TSB Group Plc and the UK’s three other biggest banks need to repay as much as £54 billion of debt by the end of March 2009, just as borrowing costs reach record highs.
The total, which includes bonds, loans and commercial paper, is triple the debt repaid in the same period a year earlier. RBS has about £11.5 billion of obligations coming due in the next six months, while Barclays has £15.9 billion maturing, according to data compiled by Bloomberg.
“Some sort of government guarantee is a sensible measure, which could give a sense of security for banks to start lending to each other again,” said Simon Willis, a London-based analyst at NCB Stockbrokers Ltd. “We can’t tell if this will be enough until we get there, but it’s a good first step.”
Edinburgh-based RBS fell 46.7 pence to 101.4 pence, its lowest value for 13 years, as of 10:34 am in London trading. HBOS, the country’s largest mortgage lender, declined 14 per cent and Lloyds TSB dropped 9.8 per cent. Barclays fell 8.4 per cent.
RBS Comments: “We have categorically not requested capital from the government,” Barclays spokesman Alistair Smith said.
“We have our feet on the ground,” John Varley said at the Merrill Lynch & Co conference in London today in a speech. “We understand very clearly that the environment is difficult, and that it’s quite likely to get more difficult as economies in the world decelerate.”
“The outlook for 2009 is challenging,” said Fred Goodwin at the Merrill lynch conference. “We are delivering against our plans and targets.” Goodwin made no reference to the bank’s share price, RBS spokeswoman Carolyn McAdam said.
An official in Prime Minister Gordon Brown’s office had no immediate comment. Last night his official spokesman Michael Ellam echoed Darling in saying the government would not be giving details of what it is considering.
Asked if he could confirm that Darling had met Lloyds TSB CEO Eric Daniels, Fred Goodwin and John Varley last night, a Treasury spokesman said he could not.
“It would be irresponsible to speculate on the specifics of future responses,” Darling told Parliament last night. “Providing a running commentary could add to uncertainty. All practical options must remain open to us.”
Lloyds spokesman Mark Lidiard reiterated today that the bank will “look at opportunities” to raise capital and it continues to target a capital ratio of 6 per cent to 7 per cent. He declined to comment on a report by the British Broadcasting Corp that the bank also took part in the talks with the government yesterday.
Tax experts say valuation of shares is a grey area and may lead to litigation
This, as the industry is still struggling with sluggish demand