Management shake-up as Banks are nationalised

publication date: Oct 13, 2008

As part of the banks' announcements:

    * Lloyds and HBOS said they had renegotiated their merger, reducing the amount of Lloyds TSB shares that HBOS shareholders will receive.
    * RBS said chief executive Fred Goodwin was quitting with immediate effect to be replaced by British Land boss Stephen Hester. RBS chairman Tom McKillop is to retire.
    * HBOS chief executive Andy Hornby and chairman Lord Dennis Stevenson said they would stand down from their posts.
    * RBS and Lloyds TSB/HBOS will return mortgage and small-business lending to 2007 levels, which is much more than they are currently lending.

Other developments included:

    * Major central banks saying they would offer financial institutions an unlimited amount of short-term dollar loans to help stem the crisis.
    * London's FTSE 100 index rising by about 6% as investors reacted to the news, with banks among the winners.


Prime Minister Gordon Brown said the bail-out was: "unprecedented but essential for all of us", and would thaw frozen money markets.

   
BANKS AND THEIR BAIL-OUTS
RBS - £20bn
HBOS - £11.5bn
Lloyds TSB - £5.5bn

The investments were assets and, "not just money being pumped in", he added, saying the government was: "not a permanent investor in UK banks". "Its intention, over time, is to dispose of all the investments it is making as part of this scheme in an orderly way," Mr Brown said. As a condition of the deal, the government has insisted that senior directors should get no cash bonuses this year, with future bonuses to be paid in the form of shares - a move aimed at encouraging management to take a more long-term approach.

The government will buy £5bn of preference shares in RBS and another £15bn of ordinary shares if, as many expect, the bank is unable to find willing private investors. "It's immensely regretful we're coming to shareholders to raise funds again, it's something we feel bad about," said RBS chairman Sir Tom McKillop. HBOS will raise £11.5bn from taxpayers, made up of £8.5bn in ordinary shares and £3bn in preference shares, while Lloyds TSB is to get £5.5bn. The money is conditional on the merger of the banks going through. Lloyds TSB and HBOS said the deal was still on, but that the terms had been renegotiated.

A £12.2bn deal was agreed last month, but the value of HBOS shares has since plunged and the extent of the recapitalisation has highlighted its weakness. Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every HBOS share they hold. Under the original deal they would have received 0.83 Lloyds TSB shares. Barclays has said it is to raise £6.5bn of new capital. The bank is to raise the money from private investors, rather than going to the government. Barclays also said it would scrap its final dividend payout for 2008, saving it £2bn.

Our business editor said it was not wrong to describe the part-ownership of RBS, Lloyds TSB and HBOS as nationalisation, but the situation was very different from Northern Rock and Bradford and Bingley, which had seen private investors lose their holding. "Shareholders will continue to own a big chunk of the banks," he said.