State-backed UK bank recapitalisations and guarantees

HM Treasury statement (about 2 pages) on the implementation of plans to provide capital and guarantees to UK banks.

The notice states that support will be provided to the Royal Bank of Scotland immediately, and to Lloyds TSB and HBOS “upon successful merger”.

The Royal Bank of Scotland's placing document (about 10 pages) gives some financial details of the deal and states that:

RBS commits to maintain the availability of SME and mortgage lending at least at 2007 levels.

The Lloyds TSB combined placing/merger document (11 pages, PDF) has a more wordy version of a similar commitment. It also states that the fund-raising is conditional on the proposed merger with HBOS, although HBOS will be raising £11.5 billion of new capital on similar Government-sponsored terms ahead of the completion of the merger. The fund-raising is described as necessary to raise “additional capital which the UK Government requires Lloyds TSB to have if it is to access the Government backed provision of liquidity”.

The Lloyds TSB document also states that:

To satisfy EU state aid requirements, the aggregate growth in balance sheet volumes of banks accessing the government schemes will be limited to the higher of the annual growth rate of growth of UK nominal GDP in the preceding year or the average historical growth of the balance sheets in the UK banking sector during the period 1987 – 2007, unless there is evidence that the thresholds are exceeded for reasons unrelated to the schemes.

HBOS has published a questions and answers document (3 pages, Microsoft Word).

For further information or advice please contact Franck Latrémolière.

Filed under HM Treasury, State aid.

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