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British lenders to get $87b in gov't funding

(China Daily/Agencies)
Updated: 2008-10-09 16:05

Britain's banks will get an unprecedented 50 billion pound ($87 billion) government lifeline and emergency loans from the central bank after the freeze in credit markets threatened to bring down the financial system.

The government will offer to buy preference shares from Royal Bank of Scotland Group Plc, Barclays Plc and at least six other banks, and provide about 250 billion pounds of loan guarantees to refinance debt, the Treasury said in a statement yesterday. The Bank of England will make at least 200 billion pounds available. The plan does not specify how much each bank will get.

The emergency action failed to stem the stock market rout, with the United Kingdom's benchmark FTSE 100 Index falling as much as 7.8 percent. British Prime Minister Gordon Brown is following US President George W. Bush, who approved a plan to spend $700 billion last week to prop up financial institutions with untested measures as equities plunged around the world.

"The global market has ceased to function," Brown said yesterday.

"The banking system must be sounder, and that is why we are putting the capital in."

Brown's government was forced to act as the economy tumbled toward a recession and shares of the country's biggest banks lost more than half their value in a week. Edinburgh-based RBS had its credit rating cut by Standard &Poor's for the first time in almost a decade on concern that the company's financial health was deteriorating.

The steps to partially nationalize the industry provide the "building blocks to allow banks to return to their basic function of providing cash and investment", Chancellor of the Exchequer Alistair Darling said yesterday.

Britain joins the US, Germany, Ireland, Greece, Iceland and Spain in rushing out bailout measures. Germany, Ireland and Greece have pledged to guarantee savers' deposits. Iceland has taken over two of the nation's three biggest banks, while Spain has agreed to spend as much as 50 billion euros to buy bank assets.

The UK initiative comes after the government took control of Northern Rock Plc and Bradford &Bingley Plc earlier this year and arranged the takeover of Edinburgh-based HBOS Plc. Darling and Brown are trying to prevent the financial services industry, which accounts for about one-fifth of London's economy, from collapsing under the weight of the global credit crunch.

Financial-service companies will cut 12,000 jobs before the end of the year, about 33 percent more than a year earlier, according to estimates last month from the Confederation of British Industry, the country's biggest business lobby group.