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Govt unveils £37bn bail-out of RBS, Lloyds TSB and HBOS

The Government has unveiled details of a £37bn capital injection into Royal Bank of Scotland, Lloyds TSB and HBOS in return for shares.

RBS is to raise £20bn as the Government buys £5bn of preference shares and underwrites £15bn of ordinary shares, while a further £17bn is being pumped into HBOS and Lloyds TSB upon completion of their merger on renegotiated terms.

Barclays is to raise £6bn through private capital raising.

The Government will have a role in approving independent directors on the boards of those banks that are receiving taxpayer investment and it is thought that it will end up with a 57 per cent stake in RBS and a 37 per cent stake in the merged Lloyds/ HBOS bank.

These banks will all have access to the Government’s inter-bank lending guarantees, but in return for the investment, the Government says it expects the banks to make no bonus payments to board members this year and to ensure that bonus structures reward long-term value creation in the future.

They have also committed to competitively-priced lending to consumers and small businesses at 2007 levels and to pay no dividends until the Government’s preference shares have been fully redeemed.

The banks will each raise their tier one capital ratio to above 9 per cent.

RBS chief executive Sir Fred Goodwin has resigned and will be replaced by British Land chief executive Stephen Hester.

The FSA has written to all bank CEOs setting out high-level criteria for directors’ remuneration.

The Prime Minister Gordon Brown has promised the Government will be the “rock of stability” for British families and businesses.

He said he would later today unveil proposals for global reform of the financial system.

The Chancellor Alistair Darling says: “It is necessary because we are going through quite extraordinary circumstances the world over and I’m determined to do everything we can to stabilise our banking system and make it stronger.”

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