IN A tumultuous day for Scotland's flagship banking industry, the government is poised to emerge as the largest shareholder in both HBOS and the Royal Bank of Scotland today.
HBOS was set to take £12 billion of government money, RBS between £15 billion and £20 billion, Lloyds TSB £5 billion and Barclays £7 billion, with RBS and Barclays expected to seek extra money from outside shareholders to take the overall total for UK banks to £50 billion. The deal casts huge uncertainty over the fate of the Lloyds TSB rescue takeover of HBOS.
HBOS rejected a report last night that the deal had collapsed, but declined to comment on whether the terms would be renegotiated. Shane O'Riordain, head of group communications for HBOS, said: "The deal remains in place and is on track."
Whether or not the takeover goes through, Scotland is set to be left with a banking sector dominated by two banks where the government is majority shareholder, posing huge questions over future competition policy. The government could take seats on the boards of banks, a government source said.
Treasury officials were locked in talks with senior banking figures last night, finalising the deal which is likely to see well over £35 billion of government money used to part-nationalise Britain's four main high-street banks. It is set to provide capital in return for preference shares, which could pay an annual dividend of about 10 per cent but typically do not have voting rights.
Other European countries also prepared to step in to help ailing banks, and leaders met in Paris yesterday to discuss options, racing to throw banks a lifeline before markets reopen.
Sir Fred Goodwin, the chief executive of RBS, is to step down as part of a sweeping regime change. Sir Fred, nine years at the helm of RBS and the man who came to personify Scottish business success worldwide, will be replaced by Stephen Hester, currently the chief executive of British Land.
Today's enormous developments will rewrite the entire financial sector in Britain – and especially in Scotland, home to two FTSE100 banks. And it threatens a deep downturn in Edinburgh as bank operations downsize and subsidiaries are sold off.
The departure of Sir Fred after nearly a decade signals the end of an era in which he took RBS from being a small player on the British scene to being the nation's second largest bank with a market capitalisation greater than Coca-Cola's and with a headcount of 19,000 in Scotland – greater than Scotland's oil and gas industry.
Meanwhile, European leaders meeting in Paris agreed a plan to tackle the banking crisis, saying no big institution will be allowed to fail. They pledged to guarantee loans between banks until the end of 2009, and said they would put money into them by buying preference shares. Nicolas Sarkozy, the French president, described the proposals as unprecedented steps.
World governments have been racing to throw banks a lifeline before the major markets reopen today.
News of the rescue plan came after talks between leaders of the 15 countries in the euro currency zone.
Gordon Brown, the Prime Minister, attended parts of the talks although Britain is not a member of the eurozone.
In the United States there was a scramble to save the investment bank giant Morgan Stanley. Action is also under way to save other banks through injections of government capital.
The combined action, running to hundreds of billions of dollars, is a massive global mobilisation to stem the tide of fear and panic that engulfed markets last week.
Both the Tokyo and New York markets are closed today – so Britain and Europe have to take the lead with colossal action that turns round sentiment.
The capital injections are right at the top end of expectations. The authorities dare not risk yet another set of rescue plans being swept aside by markets fearful of a systemic global collapse.
The dramatic announcements come as the International Monetary Fund warned that global equities could plunge by a further 20 per cent in the coming days unless decisive action was taken to deal with the crisis.
Were that to happen, the government would have no choice but to nationalise the entire British banking sector.
TIMELINEWednesday 17 September: News breaks that Lloyds TSB is to take over HBOS in a £12.2 billion deal, creating a banking giant holding close to one-third of the UK's savings and mortgage market.
Thursday 18 September: Eric Daniels, the chief executive of Lloyds TSB, confirms the merger would lead to redundancies, although the impact would be "minimal".
Friday 3 October: The First Minister's Council of Economic Advisers meet in Ayrshire to discuss ways to get the best deal for Scotland from the HBOS takeover.
Friday 10 October: Doubts about the Lloyds TSB takeover emerge after Tavish Scott, the Liberal Democrat leader in Scotland, claimed it was no longer "the only deal in town".
•
Takeover of HBOS falters as state steps in
'Fred the Shred' to step down as RBS chief•
Brown finds a career life raft in financial storms•
Hester set to land top RBS role as Goodwin pays price for slump•
Brown confident of persuading European leaders to adopt UK-style rescue package•
Salmond rebuts 'arc of insolvency'The full article contains 888 words and appears in The Scotsman newspaper.
