British Government to Bailout British Banks

Discussion in 'Political Zone' started by Maikeru-sama, Oct 8, 2008.

  1. Maikeru-sama

    Maikeru-sama Mick Green 58

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    Taxpayers will be committed today to providing more than £50 billion to bail out high street banks in an attempt to avert a cataclysmic failure of confidence.

    Alistair Darling was due to tell the City in an early morning announcement today that the sum will be available for “investment” in banks that have demanded help from the Government. The drastic rescue move is designed to help to reassure savers and to kickstart the paralysed credit markets by encouraging banks to lend to each other again.

    After meeting Mervyn King, the Governor of the Bank of England, Downing Street was forced to make the announcement earlier than it had intended because of fears that a second day of hammering for bank shares had made leading institutions vulnerable. HBOS shares slumped by 42 per cent yesterday, Royal Bank of Scotland was down 39 per cent and Lloyds TSB dived 13 per cent in another torrid day for the banks.

    The taxpayer will take a stake in banks that seek assistance through the purchase of preference shares, which the Chancellor will say could mean ordinary people making a profit once the crisis is over. Holders of preference shares are the first in line for the payout of dividends but they do not carry voting rights. The bailout is expected to be structured so that the Government also receives rights to ordinary bank shares at low prices, holding out the prospect of profits if and when banks recover. Mr Darling will also announce extra help from the Bank of England to ensure that the banks have enough cash to run their day-to-day activities.

    The collapse of the online bank Icesave, leaving 300,000 British depositors with no certainty that they will get their £4.5 billion of savings back, added to the urgency for a scheme to restore confidence. The part-nationalisation of the banks — “recapitalisation” will be the term used by Mr Darling, while Gordon Brown will refer to a “stability and restructuring plan” — comes amid fresh evidence that the economy is deteriorating quickly because of the drying-up of credit. The British Chambers of Commerce said that Britain was now in recession and faced 350,000 job losses in the next year. Confidence had collapsed in the manufacturing and services sectors, it said, and it joined the CBI and other employer groups in calling for an immediate interest rate cut. The Bank of England’s rate-setting committee begins its regular monthly two-day meeting today and is widely expected to cut its base rate by half a percentage point to 4.5 per cent.

    The severity of the seizure in credit markets worldwide was underlined when the US Federal Reserve took the unprecedented step yesterday of offering short-term loans beyond the beleaguered banking sector to large US corporations. A hint from Ben Bernanke, the Chairman of the Federal Reserve, that he was prepared to cut US interest rates failed to lift the gloom. Wall Street dived, the Dow Jones industrial average sliding by 508 points last night to 9,447.11.

    Mr Darling’s restructuring scheme has echoes of a successful operation by the Swedish Government in the 1990s to rescue its banks. Putting in taxpayers’ cash means that the equity value to ordinary shareholders will be reduced, which is why the shares have taken a battering in recent days.

    While no single bank wants to be the first to take up the Government’s offer, regarding it as an admission of capital weakness, at least four banks — Royal Bank of Scotland, Barclays and the prospective merger partners Lloyds TSB and HBOS — were inching towards agreement in principle last night. It was not clear whether HSBC would join.

    Banks still wanted to see the detail. They want the interest they pay on the preference shares to be as low as possible and the equity rights given to the Government as small as possible.

    Ministers are putting the blame for disclosures yesterday morning firmly on the banks, who were accused of briefing the BBC about a meeting between Mr Darling and Barclays, the RBS and Lloyds TSB and other institutions on Monday night. At that gathering Mr Darling was urged to speed up his bailout plans. The leaking of what went on was denounced as irresponsible by Downing Street. For their part, the banks accused Mr Darling of dithering for not going ahead with his announcement earlier.

    After the meeting, Mr Darling confirmed that he would be making a statement before the London stock markets opened today and another in the Commons later. It was believed that the first would come at about 7am. Although he gave no details, he said that the aim was to put the banks on “a longer-term sound footing”. The National Economic Council of senior ministers and officials, formed by Mr Brown last Friday as an economic “war Cabinet”, will meet at 8am.

    George Osborne, the Shadow Chancellor, reiterated that the Tories would work with the Government, although he added: “We must make sure that any support from the taxpayer is used to help save small businesses from closure and enable families to stay afloat, not to pay the bonuses of bankers. We should be rescuing the banks to rescue the economy, not to rescue the bankers.”

    The go-ahead for today’s historic announcement, providing the astonishing spectacle of a Labour government bailing out the banks with taxpayers’ help and Conservative Party support, came at a meeting in Downing Street last night between Mr Brown, Mr Darling, Mr King and Lord Turner of Ecchinswell, the chairman of the Financial Services Authority.

    Mr Darling, Mr King and Lord Turner initially met in No 10 as the tripartite committee responsible for maintaining financial stability before being joined by the Prime Minister. President Bush and Mr Brown had talks yesterday about the need for co-ordination of international efforts to tackle the crisis.

    John Cridland, the Deputy Director-General of the CBI, said: “The Chancellor’s much-anticipated announcement of capitalisation will herald the first essential step on the road to financial recovery.”

    Martin Slaney, head of derivatives at GFT Global Markets, said that the FTSE 100 index was likely to open 100 points lower today after further heavy falls on Wall Street. “What the market wants, the market is unlikely to get. After the constant ‘whatever is needed’ reassurances from the Government there is every chance the reality does not live up to the hype.”

    He said that the “best-case scenario” would be a £50 billion injection of funds and a simultaneous 0.5 per cent interest rate cut. Mr Slaney added: “The market’s loss of confidence is seemingly only going to be resolved with an extensive co-ordinated G7 response.”

    James Hughes, an analyst at CMC Markets, expected a small improvement in the markets but feared that it could prove to be short-lived.

  2. burmafrd

    burmafrd Benched

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    So where is the EU? Where are all those so called smart people in Europe you libs want us to copy?

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