Government plans radical share bail-out for banks

Published on Monday 6 October 2008 09:55

THE Government is drawing up radical plans to take shares in some of the UK's biggest high street banks.

Chancellor Alistair Darling is understood to be planning to invest billions of pounds in the banks in return for shares.

The emergency bail-out scheme would go ahead if the market worsens in a bid to secure the future of some of the biggest names in banking.

But the move, which follows the Government rescue of Northern Rock and Bradford & Bingley, is likely to draw some criticism as it puts billions of pounds of taxpayers money at risk.

Mr Darling hinted at the plan after admitting that he is "looking at some pretty big steps which we would not take in ordinary times".

Conservative leader David Cameron said today he would support "drastic capital measures".

It comes as pressure grows on the Government to step up its action in the wake of the financial crisis.

The German government has announced that it is to follow Ireland's lead in offering 100 per cent guarantees on all deposits in its banks.

And it has also agreed a 38.7 billion rescue of Hypo Real Estate, one of its biggest banks.

Responding to questions about the Government's plans to take action to secure the financial sector, Mr Darling said: "Be in no doubt we will do whatever it takes to stabilise the banking system.

"We are looking at some pretty big steps which we would not take in ordinary times but we are ready to take them."

The Chancellor was set to today make a statement to the House of Commons updating MPs on actions taken to tackle the financial crisis.

The Government's banking reform legislation is expected to be announced tomorrow.

Mr Cameron said: "More drastic capital measures might be required. It is possible to imagine the circumstances in which government injections of capital, with proper safeguards and strict conditions, may be the best way to safeguard the long-term interests of the taxpayer."

In Italy, the country's second-largest bank, UniCredit, said it is to sell 973 million shares in a bid to raise 5.1bn of additional funds. The capital-raising announcement was accompanied by a profit warning, with it saying the past three weeks have been "extremely challenging".

In early trading today, the FTSE 100 Index tumbled more than 200 points after the weekend of financial turmoil in Europe.

Investors took scant comfort from Friday's backing of a US financial rescue to leave the FTSE 100 Index down almost five per cent or 240.5 points at 4739.

BOOST FOR SHAREHOLDERS

HBoS shareholders today benefited from extra shares as part of the capitalisation scheme announced in its right issue package.

For every 38 shares owned in the Edinburgh-based bank, one additional share is allocated to shareholders. It means the average HBoS shareholder received 401 shares. In total, 137 million new shares are to be issued.

The company agreed to issue the shares instead of paying a cash dividend to shareholders.

In early trading today, HBoS shares tumbled by seven per cent to 185.8p, reversing gains made at the end of last week.