Page last updated at 06:09 GMT, Monday, 13 October 2008 07:09 UK

UK banks 'forced to seek 50bn'

HM Treasury
Treasury officials are negotiating terms of the recapitalisation with the banks

Major UK banks have been told they need to seek up to 50bn to boost their balance sheets, the BBC has learned.

Royal Bank of Scotland (RBS), HBOS and Lloyds TSB are to sell shares, the majority of which the government is expected to buy.

If the government ends up owning more than half of RBS and HBOS, it will be an effective nationalisation.

Barclays has announced that it will seek to raise 6.5bn without calling on government funding.

Under pressure

BBC business editor Robert Peston says RBS is likely to get in the region of 20bn and Lloyds TSB about 5bn.

Barclays was under pressure from the Treasury, Bank of England and Financial Services Authority to raise up to 8bn, while HBOS had been told it needed as much as 12bn.

The investment is part of the 500bn plan to rescue Britain's banks which was announced last week.

The government is not expected to insist on having its own appointees on the boards of the banks, although other strings are likely to be attached.

What a sorry end to Britain's longest ever period of unbroken economic growth
Robert Peston, BBC business editor

These could involve curbing executive pay and resuming normal lending to individuals and small businesses.

The government has said that it will negotiate terms individually with each bank that participates in the scheme.

The cash will be sought by the banks in the form of shares which could be bought by private investors.

In the case of RBS and HBOS, the government is expected to be the major purchaser - giving it majority control of the banks.

Barclays had been under pressure from the Treasury, Bank of England and Financial Services Authority to raise up to 8bn - though the BBC has learned it will not be asking for government cash.

Instead it has announced that it will seek to raise an extra 6.5bn without calling on government funding.

"What we're doing now is talking with all of the banks about how we implement the programme," Yvette Cooper, chief secretary to the Treasury, told BBC1's The Andrew Marr Show.

"We'll set out the sort of strings that will be attached on a case-by-case basis," she added.

"What we're doing over the weekend is looking at specifics," Alistair Darling, chancellor of the exchequer, told the BBC in Washington after talks with President Bush and other G7 finance ministers on Saturday.

What the banks need
RBS - 20bn
Lloyds TSB - 5bn
Barclays - 8bn
HBOS - 12bn

The chief executive of RBS, Sir Fred Goodwin, is expected to resign to be replaced by Stephen Hester, the former finance director of Abbey who is currently chief executive of British Land.

Earlier in the year, RBS raised 12bn from its shareholders, which is now more than the bank is worth on the stock exchange.

Meanwhile, Lloyds TSB is renegotiating the terms of its HBOS takeover to secure the buyout for a smaller fee.

A 12.2bn deal was agreed last month but the value of HBOS shares has since plunged and the extent of the recapitalisation highlights its weakness.

Both companies insisted on Sunday evening the deal is "still on" but HBOS shareholders are expected to do less well.

Hefty falls

The deal with Royal Bank of Scotland (RBS), HBOS, Lloyds TSB will leave the government holding a mixture of normal and preference shares.

It seems Mr Brown and Co. have no choice in this matter and these takeovers are necessary, but its very wrong that it is the tax payer that should have to do this
Anthony Halpin, Aberdeen

The difference is that normal shares carry voting rights while preference shares do not, but preference shareholders, as the name suggests, get access to any money that a company makes before the normal shareholders.

The deals come following huge falls on stock markets last week.

The FTSE 100 in London fell 21.1% during the week, its worst weekly fall since the crash of 1987.

The Dow Jones in New York fell 18% in the week while the Dax in Frankfurt fell 21.6%.

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