Scottish banks may be 50% public-owned

Published on Thursday 9 October 2008 21:53

THE Westminster government could own about half of Scotland's two remaining banks under its dramatic rescue plan, analysts claimed last night.

Royal Bank of Scotland is believed to be in line for the lion's share of the potential 25 billion Treasury bail-out to shore up the ailing high-street institutions, while it is thought that HBOS – the subject of a controversial takeover bid by Lloyds TSB – may need 5 billion.

The figures from analysts Sanford C Bernstein were released as the FTSE 100 tumbled again, closing 1.21 per cent down, showing the 500 billion bail-out had done little to restore market confidence. But leading banks made gains. HBOS was up 31.20 per cent to 154p, Lloyds increased 0.83 per cent to 212p and RBS showed gains of 5.84 per cent to 96p

HSBC boosted its finances by 750 million without government help by transferring extra capital from its international parent company, HSBC Holdings, to its UK operations and, as such, has no plans to take part in the rescue plan.

It also said it had lent about 4 billion in long-term funds to other banks – a key to getting markets moving again – in the past three days.

It was still unclear how much of an active role the government will have if any bank takes up its offer of preference shares.

Under the scheme, worth an initial 25 billion with a back-up 25 billion in the coffers, banks need to raise 25 billion to increase their capital ratios.

They can do this by any means they want – including going to their shareholders or the government. Even if they do go to the government, the shares which they sell are unlikely to carry voting rights. They are expected to come in the form of a voucher, which entitles the government to dividend payouts before ordinary shareholders.

Barclays has no plans to recapitalise, but has not revealed how much it plans to raise. However, the bank is known to be planning to tap shareholders for about 3 billion – still in preference shares – and would take up the government offer if that fails.

RBS plans to take up the offer, but it is not known by how much.

Lloyds TSB and HBOS declined to comment on plans to take up the capital injection.

According to the market analysts Sanford C Bernstein, the government may own as much as 30 per cent of the combined value of RBS, Barclays, Lloyds TSB and HBOS.

RBS, at present valued at 16.55 billion, may take 8 billion from the government; HBOS, currently worth 8.5 billion, may take 5 billion and Barclays and Lloyds TSB 2.5 billion.

"The proposed injection leaves the UK banks in a strong solvency position," said Bernstein's Bruno Paulson.

"The downside is, of course, that the capital raising implies dilution, with the government potentially taking 20-30 per cent of the banks."

But he pointed out that the RBS share price plunge over the past fortnight was higher than the potential dilution.

Keith Bowman, an analyst at Hargreaves Lansdown, said: "I think it is possible we could have part-nationalised banks, but I'm sure most of the big players will do their best to not take up the government's hand of assistance." He said the package had generally received a positive reaction and the feeling in the City was that, while it had been a long time coming, it covered the basic elements it should.

In Edinburgh, Bryan Johnston, at Bell Lawrie, said that until the details of the deal emerged, including the level of stewardship the government wanted in the banks, it was hard to judge the package.

But he added: "On balance, I prefer the concept of taxpayers' participation to the American system.

"It was a long time coming, but was quite a successful proposition."

Takeover deal questioned as HBOS shares continue to rally

DOUBTS were raised yesterday over the controversial HBOS-Lloyds deal as shares in HBOS rallied in the wake of the 500 billion government bail-out.

Tavish Scott, the Liberal Democrat leader in Scotland, claimed it was no longer "the only deal in town" and called on Alex Salmond to negotiate to keep HBOS independent. However, the First Minister rejected the calls and hinted that while the bank could have recovered if the measures were announced earlier, it was now too late.

Shares in HBOS rose another 31.2 per cent yesterday to 153.5p, while Lloyds TSB gained just 0.3 per cent to 211.75p. At this price, the Lloyds paper-swap bid values each HBOS share at 153.5p.

The stronger the HBOS share price, the more shareholders may be tempted to reject the formal offer, but Lloyds TSB and HBOS say the bid is proceeding.