U.K. May Appoint Bank Representatives, Official Says

By Gonzalo Vina

Oct. 12 (Bloomberg) -- The British Treasury may appoint its own representatives to the boards of the country's biggest banks as it begins buying stakes in them over the next few weeks, a government official said.

Policy makers need to consider how to protect taxpayers' interests when taking significant stakes in lenders, said the official, who spoke on condition of anonymity.

The British government tomorrow is likely to say it will underwrite share sales of as much as 35 billion pounds ($60 billion) in four of the nation's banks, the Sunday Times reported today. Governments in Europe and North America are preparing plans to buy stakes in banks to alleviate the credit freeze threatening to tip the world into a recession.

The U.K. last week said it would invest at least 50 billion pounds to recapitalize Royal Bank of Scotland Group Plc, Barclays Plc and at least six others.

Britain's program may be big enough to give the government a controlling stake in some lenders. The U.K.'s plan contrasts with the U.S., where Treasury Secretary Henry Paulson said two days ago that American authorities would have non-voting shares.

Edinburgh-based RBS, with a market capitalization of 11.9 billion pounds, will seek at least 10 billion pounds from investors and the government, a person familiar with the matter said. Barclays's market capitalization is 17.4 billion pounds.

Capital Raising

RBS will ask the government to underwrite a total of 15 billion pounds in capital raising, while HBOS Plc, Britain's biggest mortgage lender, will request as much as 10 billion pounds, the Sunday Times said, without saying how it obtained the information. Lloyds TSB Group Plc will seek 7 billion pounds and Barclays wants 3 billion pounds, the newspaper reported.

Bank of England Governor Mervyn King has told the banks to ask for more than they need, the Sunday Times said. It reported that the rescue may leave the government owning 70 percent of HBOS and 50 percent of RBS and that the Treasury has increased the total amount of cash available to 75 billion pounds.

U.K. Treasury officials have been working with the banks on the program and tomorrow will begin outlining details of a related plan to guarantee about 250 billion pounds of interbank loans though an insurance system. The government will also unveil the capital raising plan for the four banks seeking funds tomorrow, the Sunday Times reported.

``We are working hard toward implementation,'' Chancellor of the Exchequer Alistair Darling told reporters in Washington yesterday. ``We will be doing something pretty quickly. It is essential we take action here in the U.K.''

Stock Exchanges

The Sunday Times said the scale of the bank fundraising plan may lead to a trading suspension on the London Stock Exchange tomorrow.

``In extremis, you must never rule things out, but I hope that wouldn't be necessary,'' opposition Conservative Party Leader David Cameron told Sky News today, when asked about the possibility of market suspensions around the world. ``The problem with doing that is that people find ways round trading or find other ways to trade. It also sends a terrible signal.''


Prime Minister Gordon Brown's government last week was forced to step up its efforts as Britain lurched toward a recession and shares of the country's biggest banks lost more than half their value in a week. Since then, Darling has been urging fellow finance ministers in Washington to adopt similar plans to rebuild bank balance sheets.

Euro-Zone Summit

Brown will meet European leaders in Paris today to discuss the crisis. Brown wants ``to persuade European countries to adopt the comprehensive approach we have taken in Britain,'' he wrote in the Sunday Mirror today. ``For Europe, the stakes could not be higher and this is the moment of truth.''

Paulson signaled his top priority is getting his initiative to buy financial stocks running as soon as he can. ``This is a plan that I'm quite confident will work,'' he said, while declining to estimate the size of the program.

Canada's government last week moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. The German government will create a fund of as much as 100 billion euros ($134 billion) to recapitalize German banks hurt by the financial-market crisis, Handelsblatt newspaper reported, without identifying its sources.

Finance ministers and central bankers from the Group of Seven major nations, meeting in Washington Oct. 10, agreed to ensure that key banks will get access to liquidity, funding and taxpayer funds as capital.

Credit Rating

``These are the most unstable and potentially dangerous economics circumstances in terms of the global financial system that we've seen for very many decades,'' U.K. Treasury Chief Secretary Yvette Cooper told the BBC's Sunday AM show today. ``If we can get governments acting across the world in a coordinated way we can respond to that and try and get the money markets moving again.''

RBS, Britain's third-largest bank by market value, last week had its credit rating cut by Standard & Poor's for the first time in almost a decade on concern that its financial health was deteriorating.

The steps to partially nationalize the industry provide ``essential preconditions'' to kick-start lending, Darling said.

``We had to say to banks: you recapitalize and, if you do that, we will guarantee your inter-bank lending,'' Darling said. ``That's what they need in order to get the funds they need.''

The U.K. initiative comes after the government took control of Northern Rock Plc and Bradford & Bingley Plc earlier this year, and arranged for London-based Lloyds TSB Group Plc, the U.K.'s biggest provider of checking accounts, to take over Edinburgh-based HBOS Plc, the country's biggest mortgage lender.

London-based HSBC, Europe's biggest bank, said last week it doesn't plan to receive capital from the U.K. because it has sufficient funding. Standard Chartered Plc, the London-based bank that makes most of its profit in Asia, and Abbey National, the U.K. unit of Spain's Banco Santander SA, also said they won't seek capital from the government.

RBS, HBOS, Barclays and Lloyds TSB praised the funding plan and said they will study it before saying how they might use it.

To contact the reporter on this story: Gonzalo Vina in Washington at gvina@bloomberg.net