The government is to inject £37 billion into Royal Bank of Scotland, HBOS and Lloyds TSB in a move that part-nationalises three of the biggest banks in the UK.
The move follows Gordon Brown unveiling his government’s banking bailout plan earlier this month, which included making capital available to seven banks and one building society.
The Treasury says it must make the capital available in order to “support stability in the financial system, protect ordinary savers, depositors, businesses and borrowers and to safeguard the interests of the taxpayer”.
However, it means that the government – and the taxpayer – will own around 60% of RBS and 40% of HBOS/Lloyds TSB (once its merger completes).
In return for the capital investment, the Treasury says it will ensure the availability of “competitively-priced” mortgages, plus deals for those struggling with their payments. It will also have the right to have an input into who runs the banks.
Alongside confirming its cash injection from the Treasury, Lloyds TSB has announced revised terms for its acquisition of HBOS. Under the terms of the original deal, HBOS shareholders were to receive 0.83 Lloyds TSB shares for every one HBOS share they held - valuing HBOS at £12.2 billion.
However, in light on “unprecedented turbulence in global financial markets”, Lloyds TSB is now offering HBOS shareholders 0.605 of its shares for every one HBOS share they hold.
The announcement this morning saw the FTSE 100 open 200 points up, but in the first hour of trading, HBOS shares were 8% down while RBS' were 2% down. Lloyds TSB, however, saw its share price leap 10%.
Meanwhile, banking giant Barclays says it has declined any capital from the Treasury at this time claiming it is “well capitalised” and with “access to the liquidity required to support its business”.
However, with the financial regulator now demanding UK banks to be better capitalised than in previous years, Barclays is planning to raise an additional £6.5 billion from investors rather than the government.