December 23, 2008
Prime Minister Gordon Brown said the U.K. is working on the “second stage” of a bank rescue intended to channel more cash to consumers and businesses as the economy slides into recession.
“What we’re doing is to make sure the second stage of the recapitalization happens as effectively as possible,” Brown said in Brussels today. “We want to see the banks do more to make sure that small business, that every business, feels satisfied. We will do whatever it takes.”Brown is concerned that banks remain reluctant to lend even after tapping into a 50 billion-pound ($74 billion) government program to bolster their capital. Chancellor of the Exchequer Alistair Darling is considering credit guarantees for households and companies to encourage loans, a person familiar with the plan said this week.
To date, the government has allocated 37 billion pounds to buy stakes in HBOS Plc, Royal Bank of Scotland Group Plc and Lloyds TSB Group Plc. The Treasury always planned to take the value of that program to 50 billion pounds. Brown didn’t give any details of the government discussions.The original rescue plan agreed also called for the government to extend a 200 billion-pound credit guarantee to banks in exchange for a commercial fee. Banks are having to pay the government dividends of about 12 percent, six times the Bank of England’s benchmark lending rate.
Lending Boost
Banks will have to boost lending to consumers and businesses if the government agrees to reduce fees charged on loan guarantees it offered as part of the package, the Financial Times reported today.Conservative lawmakers in Parliament have said Brown’s bailout program isn’t working because terms of the agreement are tilted toward protecting Treasury funds.“The purpose of recapitalization was not necessarily to protect the banks but to ensure the flow of lending could continue at normal rates,” Conservative leader David Cameron said in Parliament on Dec. 10. “He is lending to the banks at 12 percent and he expects them to lend out at 6 percent.”Banks approved 39,900 loans for house purchases in October worth 5.5 billion pounds, down 52 percent by volume and 57 percent in value from a year ago, according to the CML.
Borrowing Costs
The average cost of a two-year fixed-rate mortgage fell by 0.71 of a percentage point to 5.11 percent in November, the Bank of England said yesterday. That’s less than half the 1.5-point reduction the central bank delivered on Nov. 6. It has since cut the rate by a full point to 2 percent, the lowest since 1951.
“It’s critically important that we get the banks lending again,” Darling said Dec. 9. “We will be announcing in the near future measures, which I hope will not only strengthen the banking system but I hope will ensure greater lending to business and people.”HBOS, which is being taken over by Lloyds TSB, said today this year’s charge for bad loans rose to 5 billion pounds, led by an increase in corporate delinquencies that was worse than analysts forecast.
HBOS is “now guiding us that things are going to get much worse before they get better,” said Simon Maughan, a London- based analyst at MF Global Securities Ltd.
Source:http://www.bloomberg.com/apps/news?
