The British government is planning to pump in an additional capital of up to 19 billion pound into the Royal Bank of Scotland and hike its stake to as much as 84 per cent, a move that would virtually nationalise the bank.
"Alistair Darling is preparing to plough billions more of taxpayers' money into Royal Bank of Scotland to take the government stake in the bank from 70 per cent to as high as 84 per cent," the Sunday Times said.
As part of the deal, the government would pour up to 19 billion pound of additional capital into RBS.
"The subsequent increase in the taxpayers' stake will leave the bank (RBS) virtually nationalised, with a small portion of shares left in the hands of private investors," the daily said.
The daily added that the Treasury this week would confirm that RBS is signing up to a controversial deal to pump 270 billion pound of problematic loans into a state-backed insurance scheme.
The outcome of the state hiking its stake is harsher than the bank expected. The bank was already committed to reducing its balance sheet by 40 per cent and selling off a slew of international businesses.
RBS would now be expected to shoulder an additional 20 billion pound of losses on its own balance sheet before it lay claims on the government insurance.
Meanwhile, European competition commissioner — Neelie Kroes, has ordered RBS to sell its Churchill and Direct Line insurance operations, which has a network of over 300 branches, and large parts of its investment bank.
An agreement in this regard has been reached between Kroes and RBS chief executive Stephen Hester last week.