LONDON - BRITAIN said on Monday it would inject up to 37 billion pounds (S$94 billion) of public money into three ailing banks, urging other countries to take similar radical steps to prop up the global financial system.
Shares in London soared more than five per cent in early trading on the news that 64 billion dollars (S$94 billion) was being pumped into Royal Bank of Scotland (RBS), HBOS and Lloyds TSB.

While insisting his government was not taking permanent stakes in banks, Prime Minister Gordon Brown said it had to be a ‘rock of stability’ during the global credit crunch and revive confidence in financial institutions.

The bail-out was ‘unprecedented but essential for all of us,’ he told reporters, after the Treasury said the government could own up to more than 60 per cent of RBS and 43.5 per cent of a combined Lloyds TSB-HBOS entity.

‘For savers, for small businesses, and for homeowners, we must in an uncertain and unstable world be the rock of stability on which the British people can depend.

‘Taking shares is a temporary measure. We have no interest in running British banks; we do have an interest in strengthening their financial position. A common-sense response to the difficulties we are facing.’

The announcement was the first implementation of a rescue package for banks unveiled last week, in which it made available 50 billion pounds to inject cash into financial institutions in return for shares.

The plan also makes available 450 billion pounds in cash for banks and guarantees, to encourage banks to start lending to each other again - a crucial function for the world economy.

Taxpayers’ money will be used to buy five billion pounds worth of shares directly from RBS. The government will also underwrite a 15-billion-pound share issue.

Brown insisted the government’s shares would be held temporarily and ‘at arm’s length’ to be sold once the banks are sufficiently strengthened.

‘This is perhaps the first government to do what I believe a large number of governments are going to do over the next few days,’ he said.

Finance minister Alistair Darling said he hoped other countries caught in the credit crunch would base their rescue packages on Britain’s bank bail-out plan.

‘It is now clear that this is a model that other countries are going to adopt because this is a truly global problem,’ the chancellor told BBC radio.

As part of the bailout RBS chief executive Fred Goodwin is quitting immediately, to be replaced by British Land boss Stephen Hester. Chairman Tom McKillop is to retire.

With Lloyds TSB, the government is buying one billion pounds’ worth of shares and underwriting a 4.5-billion-pound share issue. Lloyds TSB is set to take over HBOS, and the money dependent on their merger going through.

The state is buying three billion pounds’ worth of shares in HBOS and underwriting an 8.5-billion-pound share issue. HBOS chairman Lord Dennis Stevenson and chief executive Andy Hornby will stand down.

Mr Darling said the government was appointing three directors to the RBS board and two to Lloyds TSB.

Barclays bank said it intended to raise more than 6.5 billion pounds only from investors, turning down an offer of government help.

Meanwhile Santander, the biggest Spanish bank, said it had injected one billion pounds into its British mortgage lender unit Abbey.

‘What we are doing will help, it will go a long, long way to reassuring people,’ Darling told GMTV television, while admitting that ‘There is a lot of turbulence to go through yet.’

The Daily Telegraph newspaper said ‘October 13, 2008, will go down in history as the day the capitalist system in Britain admitted defeat.’ —

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