The Government is bailing out three UK banks by nationalising them; RBS is getting £20bn while Lloyds TSB and HBOS will receive £17bn.
Barclays Bank on the other hand are going to try and raise £6.5bn themselves, rather than suffer the same feat as the other three.
Bradford and Bingley Nationalised by the government to save another collapse in the Banking sector tomorrow when the markets open. Bradford and Bingley is the second bank to be nationalised this year after Northern Rock.
How it will work is the loan book will be nationalised while the rest of the bank will be transferred to Santander, the owners of Abbey National.
Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in US dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks will continue to work together closely and will take appropriate steps to address the ongoing pressures.
Bank of England action
The Bank of England will offer to lend each day US dollar funds overnight against eligible collateral. The first such operation will take place today. The amount offered in each repo operation will initially be $40bn. This amount will be reviewed on a regular basis, in consultation with the other central banks.
The US dollar repo operations will take the form of an auction. Eligible collateral will consist of securities routinely eligible in the Bank’s short-term repo Open Market Operations together with conventional US Treasuries.
The Bank of England has concluded a reciprocal swap agreement (swap line) with the Federal Reserve. Through this arrangement the Federal Reserve will provide the Bank of England with US dollar funding to facilitate these operations.
For more information please see the Market Notice published by the Bank today.
Information on related action to be taken by other central banks
Information on the actions to be taken by other central banks is available on the following websites:
Bank of Canada (http://www.bankofcanada.ca/)
Bank of Japan (http://www.boj.or.jp/en/)
European Central Bank (http://www.ecb.int)
Federal Reserve System (http://www.federalreserve.gov)
Swiss National Bank (http://www.snb.ch/)
http://www.bankofengland.co.uk/publications/news/2008/054.htm
It has been confirmed that the Lloyds TSB HBOS Merger process has started with a bid of $12.2bn from Lloyds. The deal will have to go before the Financial Services Authority however unless the stock market suddenly recovers it should go through as the collapse of a bank the size of HBOS would be worse than the consequence of a new super bank.
History could be made in the world of banking as Lloyds TSB is planning to takeover HBOS.
In a normal situation the government would not let this happen and there are competition laws to stop it from happening. However if one of the UK’s major banks such as HBOS went bust it could have a catastrophic effect. This is the reason the government is easing of the rules, to enable the merger of these two giants.
One calculation suggests that some 38 million people in the UK deal with the two banks somehow and between them they would have 28% of the UK’s mortgage market.
Lloyds TSB was created out of the merger of Lloyds Bank and the Trustee Savings Bank in 1995, while HBOS was created from the merger of the former building society turned bank Halifax and the Bank of Scotland in 2001.
Merrill Lynch who themselves were apparently close to being in a similar situation to Lehman Brothers have avoid any problems by selling out to Bank of America. This year they had written off some $40bn of assets.
The deal worth about £28bn gives Bank of America access to some of the worlds best investment managers and investment banks.
As widely predicted, Lehman’s Filed For Bankruptcy today which has caused major falls to the worlds Stock Markets. The London FTSE 100 fell by 212.5 or 3.92% to 5204, while in early trading the Dow Jones has fallen by 2.58%
News is breaking that Lehman Brothers the US Investment Bank is set to go into insolvency.
With Lehman Brothers in Bankruptcy Protection many will be wandering who else will be hit by the current recession we seem to be in.
Alan Greenspan has said when commenting about Lehman Brothers in Bankruptcy Protection said, “The ordinary course of financial change has winners and losers”.