£37bn bail-out deal for three banks

5:31pm Monday 13th October 2008

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Three of Britain's biggest banks have been thrown a £37 billion lifeline by the Government as part of a dramatic taxpayer rescue of the UK's banking system.

The Government is injecting £5 billion into Royal Bank of Scotland, and also underwriting a £15 billion share issue by the bank.

Lloyds TSB and its proposed new partner Halifax Bank of Scotland are also receiving up to £17 billion of emergency funding, with the terms of the banks' merger also being reworked.

Under the unprecedented package, the Government could theoretically end up owning around 60% of RBS, and 43.5% of the combined Lloyds TSB-HBOS entity.

Prime Minister Gordon Brown said the bail-out was "unprecedented but essential for all of us". He said: "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."

The rescue deal also claimed the UK's first major casualties of the the banking crisis, with RBS chief executive Sir Fred Goodwin and chairman Sir Tom McKillop both standing down. Sir Fred, who earned £4 million last year and asked shareholders for £12 billion in April to shore up the group's balance sheet, is being replaced immediately, with Sir Tom retiring from the board next April.

Chancellor Alistair Darling said the bank bosses have waived their contractual entitlements. "I think they have decided to do the right thing there," he said.

Sir Tom said: "It is immensely regretful that we are coming to shareholders to raise funds again. This is something that we certainly feel bad about."

Mr Darling also pledged that no bonuses will be paid this year at RBS and HBOS. Speaking to BBC News, He said there had to be "strings attached" to the Government's agreement to pump £37 billion into the banks.

The Chancellor said: "We've already communicated to the two banks concerned that the bonuses will not be paid this year."

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