£37bn bank bail out confirmed

Three of Britain's biggest banks were thrown a £37 billion lifeline by the Government today as part of a dramatic taxpayer rescue of the UK's banking system.

The Government is injecting 5 billion into Royal Bank of Scotland, and also underwriting a 15 billion share issue by the bank.

Lloyds TSB and its proposed new partner Halifax Bank of Scotland are also receiving up to 17 billion of emergency funding, with the terms of the banks' merger also being reworked.

Under the unprecedented package, the Government could theoretically end up owning around 60% of RBS, and 43.5% of the combined Lloyds TSB-HBOS entity.

Prime Minister Gordon Brown said the bail-out was "unprecedented but essential for all of us".

"For savers, for small businesses, and for homeowners, we must in an uncertain and unstable world be the rock of stability on which the British people can depend," he said.

The rescue deal also claimed the UK's first major casualties of the the banking crisis, with RBS chief executive Sir Fred Goodwin and chairman Sir Tom McKillop both standing down.

Sir Fred, who earned 4 million last year and asked shareholders for 12 billion in April to shore up the group's balance sheet, is being replaced immediately, with Sir Tom retiring from the board next April.

Chancellor Alistair Darling said the bank bosses have waived their contractual entitlements. "I think they have decided to do the right thing there," he said.

Sir Tom said: "It is immensely regretful that we are coming to shareholders to raise funds again. This is something that we certainly feel bad about."

He also expressed regret for communities affected by the turmoil of the last few weeks.

"There has been tremendous movement of funds back and forward. I think the whole community has been nervous for the last few weeks."

Lloyds TSB is raising 5.5 billion of new capital, including 1 billion from the Government and 4.5 billion through a Government-backed share offer. HBOS is raising an extra 11.5 billion, including 3 billion through preference shares with the Government.

Barclays said it was not turning to the Government for emergency funding, unveiling instead plans to raise more than 6.5 billion from investors to help shore up its balance sheet. The high street bank also said it will not pay a final dividend for 2008, saving the group 2 billion.

HSBC, the UK's other major banking group, has already announced separate capital-raising measures to bolster its UK operation.

Mr Darling said RBS, Lloyds TSB and HBOS would be run "at arm's length" from the Government, and ministers would not be involved in day-to-day decisions.

He said the Government was injecting "very substantial sums" into the banks to stabilise the system.

"It is necessary because we are going through quite extraordinary circumstances the world over," he said.

"I believe that what we are doing will help, it will go a long, long way to reassuring people.

"There is a lot of turbulence to go through yet, there are a lot of bumps along the way, but I believe that this first step will help in two respects.

"First, it makes our banks strong. Secondly, of course, it is beginning the process of making lending easier."

The Government is to appoint three directors to the RBS board and two to Lloyds TSB.

London's leading share index, which slumped 21% in its worst week since 1987, rallied nearly 6% today after the rescue package was unveiled.

Barclays was up 14%, Lloyds TSB 10% higher and Royal Bank of Scotland 3% better off. But HBOS shares moved in the opposite direction, sliding nearly 10% as investors digested the terms of the reworked merger with Lloyds TSB.

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