(UK) Bank nationalisation: How a bail-out became a buy-out

[jordi_fanclub]

Source: Telegraph

Sub-title: October 13, 2008 will go down in history as the day the capitalist system in the UK finally admitted defeat

A little over a year after the Government took the unprecedented step of nationalising Northern Rock, every one of Britain's High Street banks will almost certainly become partially or totally state-owned.

Having failed to raise the money they need to balance their books, the banks have been left with no choice but to accept £50 billion of Government investment after last week's £500 billion rescue package failed to stop the collapse in share prices or make any positive impression on the credit crunch.

In return for taxpayers' cash, HBOS and RBS will issue new shares which, it is expected, will make the Government the majority shareholder. They will also have to hand over control of their boardrooms to Whitehall, making them state-run institutions.

Such a dramatic turn of events was unthinkable even as recently as last Wednesday, when ministers insisted the Government would not be taking seats on the board of any bank.

Read more: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3184842/Bank-nationalisation-How-a-bail-out-became-a-buy-out.html

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BTW, the Telegraph is a right-wing newspaper.

[FedUpWithIt All]

1. I am not sure if this is a positive or negative turn of events but RBS has turned over control.

Oct. 13 (Bloomberg) -- Royal Bank of Scotland Group Plc, the second-biggest U.K. bank before shares collapsed last week, ousted its chief executive and turned over control to the government in exchange for a 20 billion-pound ($34 billion) lifeline.

Britain will underwrite an offering of shares to investors priced at 65.5 pence and buy 5 billion pounds of preference stock in RBS, the Edinburgh-based company said today in a statement. RBS is getting more from the government than any U.K. bank and taking almost all the initial 25 billion pounds that Prime Minister Gordon Brown earmarked last week as the minimum needed to shore up the industry's capital.

Edited to add link...

http://www.bloomberg.com/apps/news?pid=20601087&sid=anOgFnYwECuE&refer=home

Gut is saying this is a bad thing.

[muriel_volestrangler]

2. As far as the RBS share price goes, it's been a bad thing

The price has now fallen to 55p; if it stays like that, I presume no private investor will take up the chance to buy more at 65.5p, so the government will indeed get the majority stake. The Lloyds TSB and HBOS merger will go ahead (with the HBOS part valued at less than before), and the government will end up with about 40% of the merged firm - so it's 'part-nationalisation' for that, but the government will more or less control it.

I think it may be a good thing for the stability of the system, though; and the government is getting real shares, as well as some preference ones, so if the banks recover, taxpayers will get some money back from this. And there's a decent amount of control for the government - from the announcement:

As part of its investment, the Government has agreed with the banks supported by the recapitalisation scheme a range of commitments covering:

* maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels;

* support for schemes to help people struggling with mortgage payments to stay in their homes, and to support the expansion of financial capability initiatives;

* remuneration of senior executives - both for 2008 (when the Government expects no cash bonuses to be paid to board members) and for remuneration policy going forward (where incentive schemes will be reviewed and linked to long-term value creation, taking account of risk; and restricting the potential for 'rewards for failure');

* the right for the Government to agree with boards the appointment of new independent non-executive directors; and

* dividend policy.

http://news.bbc.co.uk/1/hi/business/7666625.stm

[fasttense]

3. It seems the logical step.

"In return for taxpayers' cash, HBOS and RBS will issue new shares which, it is expected, will make the Government the majority shareholder. They will also have to hand over control of their boardrooms to Whitehall, making them state-run institutions."

This is the reality Paulson and bush are trying to avoid. If you simply throw money at rich people, they will simply continue doing what they have always done. But if you make that money conditional on control of their boardrooms, then maybe you can fire all the idiots who created this mess and get some intelligence into those boardrooms.

Look how despite huge losses, CEOs continue to gather in millions for their incompetency. Junkets and luxury trips are still being handed out to top executives despite being bailed out by tax payers.

You can't identify financial institutions as TOO BIG TO FAIL, and force tax payers to bail them out, and let those institutions do as they please. If they are TOO BIG TO FAIL, then they are too big to allow them to continue to play games and destroy the national economy. Government will have to step in and make them behave.

The ultimate Nanny state? Yes, but the children have been running the household for way too long to not bring in the Nannies.

[dipsydoodle]

4. "Ownership" is in the form of preference shares

The banks concerned have been barred from paying dividends until the shares are repurchased and there is also acomplete ban on bonuses until at least end of December 2009.

Old english expression : they can't have their cake and eat it too.

[FarCenter]

5. Barclays hasn't succumbed yet, and HSBC seems to be sound

Barclays has announced a raising of private capital in an effort to stay independent.

HSBC hasn't figured in this news much at all.

They are smaller than RBS, but larger than HBOS in terms of assets.

It's a big step down to the rest.

So in terms of banks by assets, about half the banks are being bailed by the UK government.

[Deny and Shred]

6. One big question for British and US state-ownership is when and

to whom do they sell?
They engineered a buy-out for stability, but I seriously doubt that either government wants to remain quasi-socialist owners of the firms that represent 'market forces.' I imagine they will hold their shares until (or if) the banks do recover, and then look to unload their shares.
I expect they'll engineer a big one-time sweetheart deal a few years from now to to an institution who will see the real windfall.
I don't think these governments (US in particular) want to see this as a fundamental shift away from how the markets operate. Strictly a stability move. Once stable, it'll be back to a similar philosophy.

[Cronus Protagonist]

7. Yes, it's cyclical, just like here

Every few years they raid the treasury. That's how they got the name, "Robber Barons", and they still operate the same way.