MARKET CRISIS UK govt to take control of two big banks October 13, 2008 AP
The British government will announce plans to take controlling stakes in Royal Bank of Scotland and HBOS, two of the banks worst affected by the financial crisis, reports said.
The unprecedented move would make the government the biggest shareholder in the banks and government representatives could be installed on their boards, the Sunday Times and Sunday Telegraph newspapers reported.
The scale of the operation could lead to trading in the banks on the London stock market being suspended to allow traders to digest the news, the reports said.
A banking source told CompareShares four banks - RBS, HBOS, Lloyds TSB and Barclays - will announce before markets open on Monday that they are taking up the offer of the government's bailout package announced on Wednesday.
British finance minister Alistair Darling told the BBC he had spent the weekend locked in talks.
"We'll be making an announcement at the beginning of the week," he said.
The banks declined to comment, but reports said RBS and HBOS would be the first to accept an injection of government money in return for shares, known as re-capitalisation.
The STG50-billion ($A125 billion) re-capitalisation plan, which would effectively see the banks part-nationalised, was the most eye-catching feature of the three-part bail-out rescue package.
The plan also makes available STG450 billion ($A1.13 trillion) in cash for banks and guarantees to encourage banks to start lending to each other again, a crucial function for the world economy.
The newspaper said RBS, which has seen its shares plummet by about 80 per cent since the credit crunch began, would ask the government for STG15 billion ($A37.5 billion) in return for a controlling stake.
HBOS, which is Britain's biggest home loan provider, will ask for STG10 billion ($A25 billion), the newspaper said, in its unsourced report.
The move would leave the government owning 70 per cent of HBOS and 50 per cent of RBS, The Sunday Times said.
Reports said discussions over the weekend focused on what strings would be attached to the money. It could see the government having extensive voting rights within the banks it bails out.
The British government has already nationalised two smaller banks, Northern Rock and Bradford and Bingley.
The markets will be watching closely after the FTSE 100 in London plunged 21 per cent during last week, its biggest weekly fall since the crash of 1987, with banking shares particularly hard-hit.
The British bailout package looks set to be copied around the world.
France will put forward legislation on Monday to copy at least one part of it, Portugal announced a similar plan Sunday and the US and German authorities are also reportedly using it as a blueprint for rescue packages.
British prime minister Gordon Brown explained the British bailout to the leaders of the 15 eurozone countries in Paris on Sunday.
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