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| RBS, Lloyds get $51 bn in second bank bailout |
| Bloomberg / London Nov 04, 2009, 00:51 IST |
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Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds ($51 billion) in a second bailout from the UK taxpayer as the two banks agreed to cap bonuses.
The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s 21 billion-pound fundraising. Both banks said they won’t pay cash bonuses to workers earning more than 39,000 pounds this year.
The rescue will bring the government closer to full ownership over RBS, while Lloyds will escape government control. Lloyds CEO Eric Daniels will raise funds from money managers to avoid the Treasury’s asset insurance plan that would give the government a majority stake. He’s betting bad loans will decline after the Bank of England said the country’s recession was nearly over. In contrast, Stephen Hester, RBS’s CEO, will accept greater government oversight and insure 282 billion pounds of his banks’ riskiest assets with the Treasury.
“There is now a very fine line between RBS being nationalised,” said Danny Gabay, director of Fathom Consulting in London and a former Bank of England economist. “This contrasts with Lloyds willing to fight harder for its independence.”
RBS fell 8.3 per cent to 35.45 pence in London trading, for a market value of 20.1 billion pounds. Lloyds declined 2.1 per cent to 83.25 pence.
“From an investors’ point of view RBS and Lloyds are still unattractive because the government’s stake is so high,” said Richard Hunter, London-based head of UK equities at Hargreaves Lansdown Stockbrokers. “This is a vindication of Barclays and HSBC decision to do everything possible to remain outside the shackles of government intervention.”
Tuesday’s bailout for RBS and Lloyds follows the 37 billion pounds the two lenders received last year and will bring the government’s stake in RBS to more than 84 per cent from 70 per cent on Tuesday.
Lloyds, the UK’s biggest mortgage lender, plans to raise 13.5 billion pounds in the UK’s biggest rights offering, and 7.5 billion pounds in exchange offers, the London-based bank said. The UK will keep its stake in Lloyds at 43 per cent by taking up its rights to buy 5.8 billion pounds of stock in the sale.
Directors of both banks will defer their 2009 bonus payments until 2012, the Treasury said on Tuesday.
“We don’t want to demonize people in banking,” City Minister Paul Myners said in an interview with BBC television, adding that most people in banking are not highly paid. “But at the top of banking, we’re going to bear down on remuneration.”
“We will extensively use deferral mechanisms and shares as part of over bonus delivery this year and indeed not paying cash, as was the case last year,” RBS’s Hester said. However, the surest way for the taxpayer never to see value for its support is if RBS is unable to have good people.” The government will buy £25.5 billion of “B” shares in RBS to strengthen the lender’s capital, the bank said in a statement. The lender will sell its insurance division and some bank branches after negotiations with the European Commission and the UK Treasury.
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