£37bn lifeline for three big banks

13 October 2008 01:18am

A £37 billion taxpayer lifeline was thrown to three of the UK's biggest banks in a bid to end the sector's turmoil.

The Government will take "significant" stakes in Royal Bank of Scotland, Lloyds TSB and Britain's biggest mortgage lender, Halifax Bank of Scotland, under the historic plan.

But the investment will come with strings attached, including curbs on management bonuses and a pledge to ensure the availability and supply of lending to small businesses and homeowners.

Under the plan, £5 billion will be injected into Royal Bank of Scotland by the Treasury, with a £15 billion share issue by the bank also guaranteed by the Government.

Lloyds TSB and its proposed new partner HBOS will receive up to £17 billion of emergency funding, while the price Lloyds TSB is paying for its rival is also being lowered.

Prime Minister Gordon Brown said the bail-out was "unprecedented but essential for all of us".

But Conservative leader David Cameron said the package was "painful and expensive" and represented "the day that the bills came in for a decade of too much borrowing".

He added: "It's not a day to be triumphant, not a day for celebration."

Under the deal, the Government could theoretically end up owning about 60% of RBS and 43% of the combined Lloyds TSB-HBOS entity, depending on how many other investors choose to buy the banks' new shares.

Privately ministers accept they will own "significant" stakes in the banks, helping to control remuneration and dividend policy until the investments are sold. The banks will stop paying dividends to shareholders until they are in a position to pay back the Government.

© The Press Association