A new bailout of British lenders will take the government stake in Royal Bank of Scotland to 70% following the Treasury’s £100bn lifeline.

Britain’s bank bosses are on standby to be called to Downing Street today or tomorrow to hear details of the new rescue plan.

Three key proposals are being finalised. The government will offer guarantees on new consumer loans, outline plans to ringfence “toxic” assets on bank balance sheets and propose to refinance the preference shares that were used to rescue Royal Bank of Scotland and HBOS.

The taxpayer’s stake in Royal Bank of Scotland could jump from 57.9% to about 70% as part of the deal.

“We’re going to be realistic about the impact,” a Treasury official said. “We don’t expect it to kick-start lending overnight, partly because there is an international dimension to all this, but we hope that, over time, the money will start flowing.”

Inquiring minds are reading RBS losses set to reach record £28 billion.

Royal Bank of Scotland (RBS) confirmed today that losses for the full-year could reach as much as £28 billion but pledged to increase lending to customers as part of the Government’s second bailout of Britain’s struggling financial sector.

Under new measures announced today, in conjunction with the Government’s second bailout of the British banking sector, RBS’ tier one capital is expected to rise by just under 1 per cent to between 6.9 per cent and 7 per cent.

RBS said today that it will increase its lending to customers across its business by £6 billion after confirming plans to convert its preference shares into ordinary shares, which will give the bank an additional £5 billion in capital and save £600 million in costs.

While RBS will offer the new shares to investors, it is widely expected that the Government will buy up the new equity to increase its, and therefore the taxpayers’, stake in the bank from 58 per cent to 70 per cent.

Notice how government solutions in the UK and US are the same as the problem. Banks lent themselves into a mess and they are supposed to lend themselves out of a mess.This is simply the way government bureaucrats think.

Taxpayers in both countries will be left holding the bag. For more on this theme, please see Fed and BOE Shell Games to Bailout Insolvent Banks.

Mike “Mish” Shedlock
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