Nationalization of British banks advances

Taxpayers May Take Shares in Barclays, HSBC

By James Kirkup
The Telegraph, London
Sunday, January 18, 2009

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4285088/...

Taxpayers could take shares in Barclays and HSBC as part of a new Government plan to insure British banks against hundreds of billions of pounds of losses on bad loans.

The latest rescue plan for the financial sector could put unlimited amounts of public money at risk as Gordon Brown takes another huge gamble on his ability to restore banks' lending to struggling companies and households.

Despite a L500 billion rescue package for the banks in October, banks are still not lending at the levels ministers and business groups are needed for the economy to function normally.

In response, the Prime Minister will announce on Monday:

-- The Government's L250 billion Credit Guarantee Scheme to support lending between banks will be extended until the end this year.

-- An expansion of the Bank of England's L200 billion Special Liquidity Scheme. The Bank will now accept consumers' car loans in exchange for high-grade Government bonds, a move intended to support the failing motor industry offer customers more credit.

-- A plan for the Government to guarantee L100 billion of mortgage-backed securities, as recommended by Sir James Crosby, a former HSBC executive.

-- Northern Rock, the state-owned bank will be told to offer more mortgages, reversing previous instruction for it to get rid of mortgage customers by charging punitive rates of interest.

Talks are also under way for the state to increase its holdings in RBS and the newly-formed Lloyds Banking Group, potentially making the taxpayer the majority shareholder in Lloyds.

The centrepiece of the offer to the banks is to provide Government guarantees against losses they might incur on loans that have now turned sour amid collapsing house prices and a shrinking world economy.

The banks will pay a "significant" fee to the Government for each loan they insure. Significantly, they will be able to pay that fee in either cash or shares.

That could open the way to the state holding stakes in Britain's four biggest banks for the first time.

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