Page last updated at 07:02 GMT, Friday, 14 November 2008

Agency 'will not manage banks'

HBOS sign
The agency will not get too closely involved in the running of the banks

The company created by the government to manage its stakes in three High Street banks will not interfere in their day-to-day running.

Its role is to "manage the taxpayer's investments, not to manage the banks," two executives wrote in the Financial Times newspaper.

The government said it would pump 37bn into Royal Bank of Scotland, Lloyds TSB and HBOS in a partial nationalisation.

In return, it will get a say in how they are run.

Arm's length

The government injected the money into the banks to avoid a collapse of the sector as bad debts and a crisis of confidence threatened their future.

It was one of the biggest partial nationalisations ever in the UK, but the government will manage the investment at arm's length.

UK Financial Investments will monitor the recapitalised banks' salaries, board appointments and lending, said Philip Hampton, its chairman, and John Kingman, its chief executive.

But they added new non-executive directors " will not... be our representatives and will not report directly to us," they wrote.

"The government has been clear that our overarching objective is to protect and create value for the taxpayer, and that we must operate on a commercial basis at arm's length," they wrote.

"We will follow best practice as an investor and have a clear-sighted view of our job - to manage the taxpayer's investments, not to manage the banks."

There has been widespread criticism of the high bonuses paid to bankers, even as their companies are failing.

Staff at the banks should be paid "fairly but not beyond fairly", they said.

The government over time would reduce its stake in the banks, as it had no wish to be a "permanent investor", they wrote.

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