UK may own 30% of big banks in bailout plan

The British government may own as much as 30 per cent of four of the country’s biggest banks as it doles out the £50 billion ($87 billion) lifeline announced yesterday, according to analysts at Sanford C Bernstein Ltd.

Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling offered to buy preference shares to help boost capital at Royal Bank of Scotland Group Plc, Barclays Plc, Lloyds TSB Group Plc, HBOS Plc and four other lenders in the unprecedented rescue plan. It also guarantees about £250 billion of loans and increases the amount the Bank of England makes available to at least £200 billion.

“The proposed injection leaves the UK banks in a strong solvency position,” London-based Bernstein analysts including Bruno Paulson wrote in a note to clients today. “The downside is of course that the capital raising implies dilution, with the government potentially taking 20-30 per cent of the banks.”

Governments around the world are trying to coordinate efforts to reopen the banking system, with US Treasury Secretary Henry Paulson indicating his $700 billion rescue plan may include investing in lenders. While banks rose in European trading today, the bailouts have yet to unlock money markets. The benchmark London interbank offer rate continued to rise, even after central banks announced a coordinated rate cut yesterday.

RBS, Britain's third-biggest bank, gained 18 per cent to 106.7 pence at 10:20 am in London. HBOS Plc, the country's biggest mortgage lender, rose 31 per cent to 153 pence, and Lloyds TSB, the UK bank that agreed to buy HBOS, added 8.3 per cent.

Rebound: Today’s rebound reduced RBS's decline for the week to 43 per cent. “In the case of RBS, the price fall in the last fortnight is far higher than the potential dilution from the government plan,” Paulson wrote.

Banks worldwide need more capital to offset losses. They posted $592 billion of writedowns since the credit crisis started last year, more than the $442.5 billion of new capital they raised, according to data compiled by Bloomberg.

RBS may get as much as £8 billion out of the £20 billion that Bernstein predicts the government will invest in the four lenders. Barclays and HBOS may also need £5 billion each from the government, Bernstein said. Lloyds TSB may need £2.5 billion. The UK would hold up to 35 per cent of RBS, a quarter of Lloyds and HBOS stock, and a fifth of Barclays if the banks need to sell shares to the government.

‘Significantly Ease’: London-based HSBC Holdings Plc, Europe's biggest bank, said yesterday it doesn't plan to receive capital from the UK because it has sufficient funding. Standard Chartered Plc, the London-based bank that makes most of its profit in Asia, and Abbey National, the UK unit of Spain's Banco Santander SA, also said they won't seek capital from the government.