Government readies £50bn bank bail-out plan

Sunday, 12 October 2008 12:00 AM

A £50 billion bail-out of British retail banks could be unveiled by the government on Monday morning, it has emerged.

The banks and the Treasury are working on a rescue plan, which will be announced before the markets open to avoid another stock market slump.

It would mean the government would become biggest shareholder in at least two banks, HBOS and Royal Bank of Scotland.

The government is not expected to appoint its own people on the banks ' boards but their ownership could mean slicing 'fat cat' bonuses and resuming normal lending to customers and small businesses.

Yvette Cooper, chief secretary to the Treasury, said the government will negotiate terms individually with each bank that wants to join the unprecedented scheme.

"What we're doing now is talking with all of the banks about how we implement the programme," Mrs Cooper told the BBC.

"We'll set out the sort of strings that will be attached on a case-by-case basis."

Banks may approach their shareholders again instead of taking part of the government's £50 billion to raise new capital.

If they go to existing shareholders for funding, the government will underwrite the issues, which means if all of the shares on offer are not sold then it will buy them.

Royal Bank of Scotland will ask ministers to underwrite a £15 billion cash call, according to newspaper reports today.

The report claimed HBOS, Britain's biggest provider of mortgages, was seeking up to £10 billion. Lloyds TSB wanted £7 billion while Barclays reprotedly needed £3 billion.

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