‘UK government eats RBS’

December 3, 2008 at 4:00 pm

The Royal Bank of Scotland (RBS) has sold almost sixty per cent of its shares to the British government after shareholders refused to buy into the struggling bank.

RBS executives had been hoping to fill the coffers from the sale of over 23 billion shares to its investors. The high sale price (65.5p each, 10p dearer than those sitting on the stock market) and falling consumer confidence saw off all but the most determined bidder, and RBS managed to sell a meagre 0.24% of its total shares. The bank lost £5.6m in a heartbeat.

Taxpayers stand to lose over two billion pounds as part of the deal but, as the BBC’s Robert Peston explained: “What’s more important is that this huge bank – which has just under £2,000bn of assets – is now majority controlled by the state.”

Handing majority control of the bank to the state – and by extension, the general public – will prevent RBS from making decisions that will hurt the economy or jeopardise the savings of millions of customers.

In October, Alistair Darling handed a promissory note to the general public when he said that the British taxpayer will be the primary beneficiary of all government rescue plans.

Since then, Lloyds TSB has been reincarnated as a solvent entity, HBOS has been tossed back and forth between potential investors and the government, and RBS has been gifted a rescue package worth around £15 billion.

Reimbursing the taxpayer is going to be a monumental task. The Chancellor of the Exchequer described the circumstances surrounding the recent credit crunch as “exceptional and extraordinary.” Mr. Darling could be forgiven for using the words “unmitigated disaster” in future correspondence.

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‘RBS to freeze overdraft charges for small businesses’

December 3, 2008 at 3:58 pm

The Royal Bank of Scotland and RBS-owned bank Natwest announced on November 24th that they will commit to freezing overdrafts for small businesses for 12 months. During the period of the freeze, businesses with a turnover of less than £1m will not have to make payments on their overdrafts and will not incur any new charges.

The decision is aimed at making borrowing and pricing easier for small businesses, and to help them make strategic decisions about their financing in the year ahead. Chancellor Alistair Darling praised the decision by the banks, saying that it would “give security and reassurance to up to one million small businesses.” The measures will take effect from 1 December 2008 and stay in place for one year.

Although widely reported as a significant boost to the fortunes of small businesses, it is clear that some will benefit more than others from the measures. The details show businesses will be able to have their overdraft frozen unless there has been a rise in the risk associated with lending. Many banks are already obliged to maintain overdraft agreements for twelve months on these terms, and less than a fifth of money lent to small businesses is in the form of overdrafts.

Other banks have come under pressure to follow RBS as part of a wider move to give small businesses an easier ride in the coming months, with calls for the government to force similar measures where they are not brought about voluntarily. The Liberal Democrats’ business spokesman, John Thurso, called on the government to “ensure other part-nationalised banks make similar pledges to their customers”.

This week has seen an extensive debate about the responsibilities of the government as a stakeholder in banks. The governor of the Bank of England, Mervyn King, told the Commons Treasury Select Committee on 25th November that “[they] can’t rule out measures where the government have to intervene directly” in banks’ decisions.

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‘Citigroup saved by US government’

December 3, 2008 at 3:56 pm

Citigroup and all associated companies have been saved from the brink of collapse by the United States government. The rescue package, thought to be in the region of $20 billion, will protect the bank’s assets from losses on $306 billion of high-yield bonds.

On October 3rd, 2008, Congress passed a law that allowed the US Federal Reserve to spend up to $700 billion in protecting major financial institutions from imploding. This new law created a giant piggy bank that has since been used to save AIG, JP Morgan Chase, and the Bank of America from insolvency.

The Troubled Asset Relief Program – our giant piggy bank – has $410 billion left in its vaults. President Bush has pledged to offer further assistance to struggling banks and lenders throughout the United States.

Public opinion of Citibank is very low and many people feel that the US government is setting itself up for a fall with the recent bailout. A total of $45 billion has been injected into the struggling bank over the last two months and experts predict that Citibank will see further losses over the Christmas period.

Citizens of New York have blasted the deal as “ridiculous” and “very wasteful.” Many Americans feel that President Bush should concentrate on helping families who can’t make ends meet rather than ploughing money into a financial black hole like Citibank.

The New York Times has created an exhaustive list of all the banks that have applied for funds from the Troubled Asset Relief Program. You can view it on the following website. All figures are in billions of US dollars.

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