UK Expands Bank Rescue; RBS Plunges

123jump.com Staff
19 Jan, 2009
New York City

The UK government was forced to convert its holding in Royal Bank of Scotland to increase its capital ratio that will facilitate new bank lending. The UK Treasury offered addtional access to lending and provided a raft of several measures that include det extensions and asset guarantees.

[R]1:00PM New York, 6:00PM London- U.K. expands banks rescue plan. Government consolidates its holding in Royal Bank of Scotland.[/R]

London stock indexes fell led by financial stocks after Royal Bank of Scotland warned that its annual loss might top £28 billion on one-time goodwill impairment of £8 billion.

The loss could be the largest recorded by any British company ever.

In London trading FTSE 100 index stocks fell 0.9% or 38.59 to 4,108.47.

Of the FTSE 100 index stocks, 50 increased, and 52 declined. Royal Bank of Scotland led decliners in the index shares with a loss of 64.3% after warning that its annual losses could soar to a record £28 billion.

Other financial stocks fell. Standard Chartered shed 8.1% and Schroders tumbled 5.3%.

U.K. Broadens Bank Rescue Plan

The U.K. Treasury reported that the government today unveiled a package to increase stability of the financial system, revive confidence and capacity to lend and support recovery of the economy.

The package is meant to extend the access to window for new debt under the Government''s Credit Guarantee Scheme, establish a new facility for asset backed securities, extend the maturity date for the Bank of England''s discount window facility, establish new Bank of England facility and offer capital and asset protection scheme for banks.

Government''s drawdown window of the credit guarantee scheme will be extended from April 9, 2009 to December 31, 2009.

Government will also negotiate with banks participating in certain facilities lending responsibility agreements with specific and quantified lending commitment that are binding and are externally audited.

The Treasury said measures that were announced in October 2008 increased capital ratios and provided a convenient buffer against the prevailing economic conditions, but more measures are required as conditions have worsened.

In addition, government will, in consultation with issuers and investors, provide full or partial guarantees to be attached to eligible triple-A rated asset-backed securities, including mortgages and corporate and consumer debt. The scheme will begin in April 2009.

The Bank of England will extend its Discount Window Facility and increase its maturity from 30 days to 1-year for an incremental fee of 25 basis points.

The Bank of England will set up an asset purchase scheme- beginning February 2- to purchase high quality private sector assets, """"""""including paper issued under the CGS, corporate bonds, commercial paper, syndicated loans and a limited range of asset backed securities created in viable securitisation structures.""""""""

Initially, government will authorize initial purchases of up to £50 billion, financed by the issue of Treasury bills.

U.K. Shores Stake in RBS

The U.K. government today converted its preference share investment in the Royal Bank of Scotland to ordinary shares that will provide additional core tier 1 capital to the lender and facilitate £6 billion more lending to industry and homeowners.

Government has agreed with the lender to extend to large corporations over the next three years the availability of competitive lending to homeowners and to small businesses.

Gainers & Losers

Sage Group led advancers in the FTSE 100 index shares with a rise of 5.1% followed by increases in Pearson Plc of 4.5%, in Centrica Plc of 4.4%, in SABMiller of 4%, and Reed Elseveir of 4.1%.

Royal Bank of Scotland led decliners in the FTSE 100 index shares with a loss of 64.3% followed by losses in Lloyds Banking of 30.8%, in Barclays Plc of 10.2%, in HSBC Holdings of 9.9%, and Wolseley of 9.1%.

Europe Markets Review

In London FTSE 100 Index closed lower 38.59 or 0.93% to 4,108.47, in Paris CAC 40 Index decreased 27.06 or 0.90% to close at 2,989.69 and in Frankfurt DAX index lower 50.14 or 1.15% to close at 4,316.14. In Zurich trading SMI decreased 54.17 or 1.00% to close at 5,381.37.