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% to as high as 84%.
A Treasury announcement this week will confirm RBS is signing up to a controversial deal to pump £270 billion of problematic loans into a state-backed insurance scheme.
As part of the deal, the government will pour up to £19 billion of additional capital into RBS by taking up an issue of “B” shares. The subsequent increase in the taxpayers’ stake will leave the bank virtually nationalised, with a small portion of shares left in the hands of private investors.
The further capital injection comes despite attempts by the bank to renegotiate the insurance deal, which takes place under the Government Asset Protection Scheme (Gaps).
The terms have ended up being even more onerous for the bank, with RBS now expected to shoulder an additional £20 billion of losses on its own balance sheet before it claims on the government insurance.
The scale of the state aid at RBS has also prompted a savage response from Brussels, which is imposing penalties on all European banks bailed out during the financial crisis.
Neelie Kroes, the European competition commissioner, has ordered RBS to sell its Churchill and Direct Line insurance operations, a network of more than 300 branches, and large parts of its investment bank. An outline agreement was reached between Kroes and Stephen Hester, the RBS chief executive, on Friday.
The outcome is harsher than the bank expected. It was already committed to reducing its balance sheet by 40% and selling off a slew of international businesses. RBS attempted to sell its insurance arm under former boss Sir Fred Goodwin but the sale plans were dropped shortly after Hester arrived. Hester thought insurance would form a central part of the bank’s recovery plan.
Kroes has enforced the break-up of RBS after taking a stand against the Gaps programme. She is said to object to the concept of states taking potentially huge liabilities for years into the future.
Lloyds Banking Group, which is 43% owned by the taxpayer, was also destined to join the Gaps programme. However Eric Daniels, its chief executive, has managed to escape the scheme after lining up a £21 billion fundraising, which will be unveiled on Tuesday.
This will involve a £14billion rights issue and a £7billion debt swap. In addition £5billion will be raised from disposals, including Cheltenham & Gloucester, Intelligent Finance internet bank and some Scottish branches.
Meanwhile, UK Financial Investments (UKFI), the taxpayers’ investment arm, has started to search for about 12 new executives to beef up the Lloyds management team.
Lord Myners, the City minister, has forced those banks advising RBS and Lloyds to cut their fees.
0 comments