British banks set for 40 billion pound rescue: sources

LONDON Sun Oct 12, 2008 7:53pm EDT

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LONDON (Reuters) - Britain could pump more than 40 billion pounds ($69 billion) into four troubled major banks and take big stakes as part of a recapitalization due to be unveiled on Monday, sources familiar with the situation said.

Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays were in line to receive the billions of pounds from investors and taxpayers to boost their capital to prepare them for tough economic times ahead, said the sources, declining to be named.

Talks among the banks, government officials and regulators were due to go on through the early hours of Monday to determine how much each would need from the 50 billion pounds offered by the government last week to offset the global credit crunch.

An announcement was expected before markets open on Monday, but details were still being fine-tuned, said the sources.

Royal Bank of Scotland Group Plc may take over 15 billion pounds, HBOS about 10 billion, Barclays may seek over 7 billion and Lloyds TSB about 5 billion, according to industry sources and media reports.

The banks are expected to try and sell shares to existing investors, backed by the government, which would buy the shares not taken by investors.

That could result in the government becoming the biggest shareholder, and even a majority investor, in Royal Bank of Scotland and HBOS.

The government could take seats on the boards of banks, a government source said on Saturday.

The Financial Times newspaper said on Monday Royal Bank of Scotland was expected to place shares with the government at 65 pence a share, compared to a closing price on Friday of 71.7 pence.

Royal Bank of Scotland's chief executive Fred Goodwin is widely expected to resign as part of the fund-raising.

Earlier this year, Royal Bank of Scotland shareholders had said Goodwin would need to step down if the bank sought to raise more cash.

Stephen Hester, chief executive for British Land, is seen taking over from Goodwin after joining the Royal Bank of Scotland board just 11 days ago.

In addition to potentially taking ordinary shares, the government is expected to provide capital in return for preference shares, which could pay an annual dividend of about 10 percent but typically do not have voting rights.

The Financial Times said Royal Bank of Scotland could also raise 5 billion pounds in preference shares, while HBOS may take around 3 billion.

Lloyds, Royal Bank of Scotland, HBOS and Barclays all declined to comment.

The Sunday Times newspaper said the scale of the fund-raising could lead to trading at the London Stock Exchange being suspended to give the market time to digest the impact.

A spokesman for the stock exchange told Reuters on Sunday: "My information is that the market will open on Monday."

($1=.5786 Pound)

(Additional reporting by and Steve Slater, Sumeet Desai and Myles Neligan; Editing by Ralph Gowling)

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