Well it wasn’t quite the £50 billion British bank bail out that many people seemed to be expecting…
…it was only £37 billion after all!
Yes, that is what it seems likely it will us taxpayers to bail out three major banks this week, in a move that could leave us as the main shareholders in at least two of them.
Gordon Brown believes that his £37 billion bail-out of the banking sector will act as a "rock of stability" that other governments will seek to copy.
Forgive us for saying this, but as Chancellor, isn’t he partly responsible for allowing this situation to develop?
It involves sticking £37 billion in to the coffers of Royal Bank of Scotland, Lloyds TSB and HBOS to try to prevent a complete breakdown in the banking sector. After an entire weekend of negotiations the Treasury announced a a large rescue plan in which bank bosses face a crackdown on their pay and bonuses, and shareholder dividends will be frozen.
The government will take a controlling stake of up to 60% in RBS, in return for up to £20 billion from the taxpayer. The RBS chief executive, Sir Fred Goodwin, known as "Fred the Shred" for his cost-cutting reputation, and chairman Sir Tom McKillop are stepping down.
The chancellor, Alistair Darling, said that Goodwin and McKillop have waived their contractual entitlements to payoffs, as have the chief executive and chairman of HBOS who have also announced their resignations.
Lloyds, which renegotiated its takeover of HBOS over the weekend, will get up to £17 billion once the merger goes through. This will leave the government owning up to 43.5% of the enlarged group, with Lloyds shareholders owning 36.5% and HBOS's investors just 20%.
The government could also yet face a £6.5 billion cash request from Barclays.
- What does the government get?
In return for fresh liquidity, the government has managed to get some concessions: RBS and Lloyds have both agreed not to pay a dividend this year (and maybe for several more) and to help those of us who are struggling to pay their mortgages. They will not pay any cash bonuses this year, and have agreed to let the government appoint several board members.
Darling said it was appropriate for the government to take seats on the boards of both companies, but insisted that they would continue to operate commercially at arms length from the government. He also insisted that bank directors will no longer walk away with large payoffs. Gordon Brown told a press conference that the government would no longer tolerate "rewards for failure" .
A few of you might be thinking it’s a bit late to be saying that now!
- The end to big banking bonuses?
Both RBS and Lloyds said today that directors who are dismissed will receive "a severance package which is reasonable and perceived as fair". Let’s hope its not the reasonable and fair sum of $480 million that the Lehman Brothers CEO got to keep.
The Financial Services Authority (FSA) has also written to the heads of the UK banks warning them about excessive pay.
Chancellor Alistair Darling said extreme times called for extreme measures and that he was prepared to make even more money available if necessary saying:
"It's necessary because we are going through quite extraordinary circumstances the world over, and I'm determined to do everything we can to stabilise our banking system and make it stronger.”
"And in return for it, of course, there will be restrictions on what happens in boardroom pay, and we're also getting guarantees in relation to increased lending to businesses, as well as to mortgages, too."
Similar measure are being taken across Europe and also in the States as many countries try to adopt a common approach to avoid a total meltdown in the financial system and its knock-on effects on the global economy.
So, will the £37 billion rescue plan have the desired effect, or will it only bring temporary relief to the economy?