08 Oct 2008
Bloomberg -- Prime Minister Gordon Brown's government will invest about 50 billion pounds ($87 billion) in an unprecedented step to prevent a collapse of the U.K. banking system. As part of the plan, the government will buy preference shares, and the Bank of England will make at least 200 billion pounds available for banks to borrow under the so-called special liquidity plan, the Treasury said in a Regulatory News Service statement today.
The government will also provide a guarantee of about 250 billion pounds to help refinance debt. The steps to partially nationalize the banking industry provide ``the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses,'' Chancellor of the Exchequer Alistair Darling said in a statement. The worsening credit crisis has forced the U.K to join the U.S., Ireland, Iceland, Belgium and Spain in rushing out untested bailout measures to save their largest banks. Edinburgh-based Royal Bank of Scotland Group Plc and HBOS Plc, Britain's biggest mortgage lender, surrendered more than half their market value this week as investors lost confidence in their ability to fund themselves. The government said it will make 25 billion pounds immediately available in the form of preference shares and stands ready to provide an additional 25 billion pounds.
The amount available to each bank will vary and will depend on their dividend payouts, executive pay policies and will require the banks to lend to small businesses and home owners, the government said. Borrowing Costs RBS, Barclays Plc, Lloyds TSB Group Plc and three other U.K. banks need to repay as much as 54 billion pounds of debt by the end of March 2009 as borrowing costs reach record highs and banks are reluctant to lend to each other. The total, which includes bonds, convertible bonds and commercial paper, is triple the debt repaid in the same period a year ago.
