The UK will launch the biggest rescue plan tomorrow to cover Britain's top banks – RBS, HBOS, Lloyds TSB and Barclays – when these four financial giants ask for a combined 35 billion pound lifeline, says a media report.
"The government will launch the biggest rescue of Britain's high-street banks tomorrow when the UK’s four biggest institutions ask for a 35 billion pound financial lifeline," The Sunday Times reported.
Royal Bank of Scotland (RBS), which has seen its market value fall to below 12 billion pound, is to ask ministers to underwrite a 15 billion pound cash call. While, Halifax Bank of Scotland (HBOS), leading provider of mortgages, is seeking up to 10 billion pound.
Besides, Lloyds TSB, which is in the process of acquiring HBOS in a rescue merger, wants 7 billion pound, while Barclays needs 3 billion pound.
The daily further said the scale of the fund-raising could lead to suspension of trading at the London stock market. "This would give time for the market to digest the impact of the moves," The Sunday Times said.
The newspaper further said "one consequence of the deal might be that Lloyds could renegotiate the terms of the HBOS takeover, although both sides are still keen for the merger to take place."
The British rescue plan could leave the government owning 70 per cent of HBOS and 50 per cent of RBS. As a result it could take board seats at both companies and exercise control over future dividend payments.
Quoting an economist who declined to be named the newspaper said "this is the biggest risk of the UK’s balance sheet ever undertaken. No-one knows the extent of the toxic assets these banks are exposed to".
Banking sources say the combined loss of capital of the banks as a result of the credit crisis was 150 billion pound but some of that has already been made up by earlier capital-raising exercises and some will not be needed because the banks will be more constrained in their future lending.
"Crisis talks were taking place this weekend between the Treasury, the Financial Services Authority, the Bank of England and heads of the four retail banks," The Sunday Times said, adding that "as part of the fund-raising it is likely that banks will also have to own up to future losses from their exposure to sub-prime mortgages and other financial instruments".
The governor of the Bank of England, Mervyn King has reportedly told the banks to ask for more than they need. This is to make sure that their capital position is strengthened sufficiently to absorb shocks and to withstand a long recession. "Further capital is also available and the Treasury has increased the total amount to 75 billion pound," the newspaper said.
"In addition, Barclays is trying to raise about 3 billion pound from Middle Eastern sovereign-wealth funds, including the Qatar Investment Authority, as well as Asian investment houses, including Japans Sumitomo Mitsui Banking Corporation," the daily added.
Last week Britain had put in place a 500-billion pound rescue package, including 50-billion pounds to part-nationalise some of its top banks.
Besides earmarking a 50-billion pound package for buying shares of banks such as HSBC, Barclays, Standard Chartered and HBOS, the government also said it would provide 200 billion pounds in short-term loans and issue 250 billion pounds to guarantee loans between banks.