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Shares rise in banks buy-out
Jonathan Prynn and Paul Waugh14.10.08
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- Fred the shred is finally shredded
- Commentary: Bank bosses blinded by arrogance
- Market will be stronger for future, vows Brown
- Manic Monday buying is relief for the dealers
- Barclays to seek £10bn as it snubs taxpayer bailout
- HBOS shares plummet after Lloyds TSB halves bid price
A WAVE of relief surged through the City this afternoon after three high street banks were effectively nationalised.
The FTSE-100 Index leapt 167.82 points to 4099.88, a four per cent rise that added £40 billion to the value of leading companies.
Traders said they hoped the Treasury's decision to pump £37 billion into the Royal Bank of Scotland, HBOS and Lloyds TSB would finally end the panic that has threatened to destroy Britain's financial system.
On Wall Street the new mood of optimism sent the Dow Jones Index soaring 352.76 points to 8803.95.
Leading City shareholders said bonuses paid to the banks' bosses should be refunded.
One said: “It has to be wrong in principle that they got bonuses for sowing the seeds of their banks' destruction.”
In return for bailing them out, the Prime Minister and Chancellor Alistair Darling said cash bonuses would not be paid to directors this year and no dividends would be paid out.
Three government directors will take seats on the board of RBS, while two directors will go on Lloyds TSB's board.
Mr Brown said the bail-out was “unprecedented but essential for all of us”.
Mr Darling pledged to defend “taxpayers' interests” ruthlessly as he unveiled the plan to nationalise the three banks.
In a statement to the Commons, Mr Darling said that the £37 billion being pumped into the Royal Bank of Scotland, HBOS and LloydsTSB had “strings attached” to help small firms and mortgage holders.
“We are making it clear that there will need to be a strong focus, at these re-capitalised banks, on making available lending for small business and homebuyers,” he told MPs.
However, shadow chancellor George Osborne attacked Labour for presiding over 10 years of spiralling debt, and Financial Services Authority chief Lord Turner warned that there were “lessons to be learned” from the past decade of “boom”.
The Chancellor confirmed that the Government was setting up a Bank Reconstruction Fund to buy shares from the top banks.
He announced that the taxpayer would have 63 per cent of the shares in RBS and 44 per cent of a merged HBOS/LloydsTSB superbank.
“These are very turbulent times in financial markets. But I believe these measures are an essential to stabilise the financial system and help the UK economy,” he said. “We are committed to do whatever it takes to stabilise the banking system, protect savers and the taxpayers and support the wider economy.”
In a get-tough message to the City, Mr Darling confirmed that no cash bonuses will be paid to any board member of RBS or HBOS and LloydsTSB this year.
Three government directors will take seats on the board of RBS, and two directors will go on Lloyds TSB's.
Barclays said it would not need government funds and instead asked private investors to stump up £6.5 billion for new shares.
The Prime Minister earlier said the bail-out was “unprecedented but essential for all of us” and made plain he expected a new approach from the City, with “excessive risk” replaced by more long-term strategy.
However, Lord Turner suggested Gordon Brown shared some responsibility for the crisis: “There are many lessons to be learned about what has happened over the last 10 years. At a macro-economic level we allowed the boom to go on for too long,” he told the BBC.
Analysts described today's bail-out as a “humiliation” for the banks. Four of the country's most senior bankers are being ousted, with RBS chief Sir Fred Goodwin forced to forgo a £1.2 million pay-off. Sir Fred and RBS chairman Sir Tom McKillop are to quit. HBOS chief Andy Hornby and chairman Lord Stevenson will also resign once Lloyds TSB completes its takeover.
Fresh evidence of the extent of City profligacy emerged when figures showed financial firms awarded staff £16.8 billion in bonuses in 2007/8.
Cross-party co-operation over the rescue came under strain as the Conservatives accused Mr Brown of milking it as a personal “triumph”.
David Cameron said the plan was necessary but expensive: “In many ways, it's paying the bills for the last 10 years of excessive debt.”
Reader views (13)
HSBC are not affected because it is and always has been a well run bank-those of us who worked for them can attest to knowing that a steady hand always was on the tiller there.
- Anna Moreno, Luxembourg
Mike Matthews, HSBC is a world-wide bank and, as its names implies it originated in Hong-King. It has deposits from Chinese savers who do not have the British habit of going into debt every time we want something They save, and when they have the money they buy. That's what my wife and I have always done. We've had mortgages in the past but paid them off before time by foregoing holidays etc
We also bank with HSBC and moved our savings out of HBOS as soon as the Scots took it over.
- Anglo, Sussex UK
Ian of Reading - you said it all. They pushed Humpty off the wall and we pay to put him back together.
- Frederick, London, UK
Can anyone tell me why HSBC & their share price are virtually untouched by all this banking shenanigins?
- Mike Matthews, London
I cant wait until my first cheque comes through the post for the interest I get for letting the banks use my money to get out of debt.
- Colin, London England
Does this mean that my bank charges will be less, or the queues will get shorter, maybe the service will improve, or could it be that the terms and conditions will now be in a language that i can understand.
Thought not.
- Mr .S.Port, London
A moment of rational thought gives us all a clear clue to the real value of this bail out. Although the nationalization was the least bad decision it is far from perfect. The falling share prices of these shares tells you that the market does not want to own shares in anything run by the the Treasury or a Labor government. Failing schools, NHS, pension destruction. Gordon Brown's smirking countenance really says it all. Utterly puke inducing. The banks will rapidly lose the very best people and will be little other than hollowed out versions of the civil service. If you thought service levels were poor before this, just wait until the dust settles on this mess. Barclays will steadily cherry pick the best of Coutts customers from RBOS et al. Best thing Lloyds could do now is walk away from HBOS and do the same as Barclays. Welcome to the new era of a two tier banking system. Barclays have become the new JP Morgan of the UK, LLoyds should regain their status as the quality white collar bank of the UK.
- James, New Malden, Surrey
Yeah, death of the city bonus until the dust settles...
- Em, london
It does now seem strange that the people whom have had oversight on creating this mess, mainly Gordon Brown. He was the Regulators Boss and was well aware of the problem years ago. Now seems to be trying to gain credit for spending our money to absolve his miss-management.
Agreeing with others, dumb move by Lloyds, HKSB was given 4billion by Gordon Brown to take the assets of B&B of his hands, and he moved the dodgy loan bit into State control. Another week and Lloyds may have been paid to take HBOS.
RBS share price values the company at less than 12 billion Gordon Brown buys 60% for 20 billion. He could have gone to the market bought the lot and had cash to spare. That is described as being a good move?
- Ian, Reading, England
Eric Daniels says a merger with HBOS is a good iudea. Why? lloyds is a triple AAA rated bank. Did not get heavily invovled in sub prime, and was in good shape, even denying a rights issue was needed. Buying HBOS is madness for shareholders, as we are now out of pocket. Ditch HBOS let the government bail it 100%
- Jack Mcmullen, Linciln
Why haven't we had a clear out of the Banking CEO that got us in this mess in the first place? Its called accountability. There should be no bonuses at all until they have made back all the money they lost plus repaid all our money in full plus internet. Bankers always say that they are good at generating profits. Lets take them at their words. Their margins must be capped at 1% and must pass all cuts in interest rates on SVR in full. Why should we lend them our money and then they charge us interest for the privilage of accessing our money? Still at least your safe in the knowledge that if you stop paying them back you won't get repossed. It would be political suicide of the govt. So offset you debt against what has loaned indivdually to the banks (roughly 20K) per taxpayer and go spend spend spend to keep retailers and small business going. They need your cash.
- Rupert, London
This effectively makes Barclays the most powerful bank not only in the UK but the U.S.
Surely shareholders in these 'nationalised' companies will just move their money back to the private sector.
Also, will the employees of these now have civil servant pensions. No didn't think so.
- Big Andy, London
I await for my share certificates to arrive in the post then. Can't believe it, me a share holder in a major bank. My old dad would be so proud.
- Fly, london
