Britain is moving quickly to use the its new bank rescue facility, which was increased from £59 billion to £75 billion. Note the article suggests that stock market trading may be suspended in connection with the rescues. From the Times Online (hat tip reader Tim):
The government will tomorrow launch the biggest rescue of Britain’s high-street banks when the UK’s four biggest institutions ask for a £35 billion financial lifeline.
The unprecedented move will make the government the biggest shareholder in at least two banks. The Royal Bank of Scot-land (RBS), which has seen its market value fall to under £12 billion, is to ask the government to underwrite a £15 billion cash call. HBOS, which is Britain’s biggest provider of mortgages, is requesting up to £10 billion. Lloyds TSB, which is in the process of acquiring HBOS, and Barclays require £7 billion and £3 billion.
The scale of the fundraising could lead to trading at the London stock market being suspended. This would be to give time for the market to digest the scale of the information and its impact.
One consequence of the deal is that Lloyds could renegotiate the terms of the takeover, although both sides are still keen for it to happen….
The British bank rescue could leave the government owning 70% of HBOS and 50% of RBS. Crisis talks were taking place this weekend between the Treasury, the Financial Services Authority (FSA), the Bank of England and the heads of the four retail banks. As part of the fundraising 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.
Mervyn King, the governor of the Bank of England, has 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.
It is thought all parties believe that a coordinated rescue is the best way forward…
The way in which the money will be raised has also been simplified. The most likely process is for the government to underwrite an issue of ordinary shares. This would give preemption rights to existing investors, and those shares not taken up will be owned by the government.
These shares could be placed in a newly created bank reconstruction fund that would hold the shares until market conditions improve.
King has insisted on the recapitalisation of the banks as a condition for other elements of last week’s bailout package, including a doubling of the special liquidity scheme from £100 billion to £200 billion and a new £250 billion guarantee of bank lending.
The Bank of England has also increased the stress test required for banks to prove that they are in a strong capital position. This is called its “core capital ratio” and it has been boosted from six to nine.
Banking sources say the combined loss of capital of the banks as a result of the credit crisis was £150 billion 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.
The Bank has also been pushing for early action by the banks on raising capital….
In addition, Barclays is attempting to raise around £3 billion from a number of Middle Eastern sovereign-wealth funds, including the Qatar Investment Authority, as well as Asian investment houses, including Japan’s Sumitomo Mitsui Banking Corporation.
Update 6:30 PM: Apparently there is a range of reporting as to the state of play. From a reader via e-mail:
Le Figaro is now saying they will all announce a plan Monday.
This is somewhat different from the German accounts in Der Spiegel, which suggested that Germany was still being recalcitrant, although more consistent with the FT line that everybody was falling in line. Let’s see on Monday morning.