London: The British government will on Monday announce plans to take controlling shares in HBOS and Royal Bank of Scotland (RBS), two of the banks worst affected by the global financial crisis, media reports said.
Government representatives could be installed on their boards in a move so unprecedented that trading in banks on the London stock market could be suspended to allow traders to digest the news, newspapers reported.
It would be the first implementation of a rescue package for banks announced last week, in which the government made available £50 billion ($87 billion) to inject cash into banks in return for shares.
A banking source told four banks - RBS, HBOS, Lloyds TSB and Barclays - will announce before markets open on Monday that they are taking up the offer, leaving foreign-owned HSBC as the only fully-independent big high street bank.
Finance minister Alistair Darling told the BBC on Sunday that he had spent the weekend in talks and would make an announcement “at the beginning of the week”, while Prime Minister Gordon Brown refused to comment on individual discussions.
The banks also declined to comment, but reports said RBS and HBOS would be the first to accept an injection of government money.
RBS, which has seen its shares plummet by about 80% since the credit crunch began, will opt to raise £20 billion this way, reports said, and could sacrifice its chief executive, Fred Goodwin, as part of the deal.
HBOS is expected to raise between £10 and 12 billion, a re-capitalisation that could prompt a renegotiation of last month’s government-brokered agreement to merge with Lloyds TSB.
Shareholders at Lloyds TSB - which itself is expected to raise about £5 billion through the government scheme - are reportedly concerned that, given the recent plunge in HBOS shares, the original price offered is too high.
However, both Lloyds TSB and HBOS insisted on Sunday they were still in talks.
Barclays is also reportedly under pressure to re-capitalise to ensure it can survive the financial crisis, and could raise up to nine billion pounds.
The Times newspaper said Monday’s expected action marked the “most dramatic extension of state ownership in the British economy since the war”.
“October 13, 2008, will go down in history as the day the capitalist system in Britain admitted defeat,” said the right-leaning Daily Telegraph.
Re-capitalisation, which would effectively see the banks part-nationalised, was the most eye-catching feature of last week’s three-part rescue package.
The plan also makes available £450 billion in cash for banks and guarantees, to encourage banks to start lending to each other again, a crucial function for the world economy.
Reports said that discussions over the weekend focused on what strings would be attached to the money. It could see the government having extensive voting rights within the banks it bails out, and some change of management.
Goodwin could be the first casualty, with many newspapers saying the RBS chief executive would likely quit Monday.
Vince Cable, finance spokesman for the opposition Liberal Democrats, told the BBC Sunday that ministers may want to ensure “some of the top managers are removed who got the banks into this position in the first place”.
The markets will be watching closely after the FTSE 100 in London plunged 21% during last week, its biggest weekly fall since the crash of 1987, with banking shares particularly hard-hit.
Britain has already nationalised two smaller banks, Northern Rock and Bradford and Bingley, but Monday’s expected action would be extraordinary, particularly given that other world leaders may follow.
Brown briefed leaders of the 15 eurozone countries on his plans at a meeting in Paris on Sunday. They then pledged to buy into banks to boost their finances and guarantee inter-bank lending, French President Nicolas Sarkozy said.
They met after the Group of Seven leading democracies proposed an action plan at weekend meetings in Washington.