The government is to give the Royal Bank of Scotland, Lloyds TSB and HBOS a boost with £37bn of taxpayer’s money. RBS is to raise £20bn with a further £17bn to be put into HBOS and Lloyds TSB. Barclays will try to raise £6.5bn without government help.

Taxpayers will own about 60 percent of RBS and 40 percent of the – now merged – Lloyds TSB and HBOS. The chief executives of both RBS and HBOS are to leave their positions, after the banks were forced to ask for the bail-out.

The Treasury cash forma part of the government rescue plan announced last week. BBC business editor Robert Peston said that the announcement would “count as perhaps the most extraordinary day in British banking history” and has resulted in “absolute humiliation” for the banks.

The banks’ made these announcements today:

  • Lloyds and HBOS have renegotiated their merger. HBOS shareholders will receive less Lloyds TSB shares than when the deal was first arranged.
  • RBS’s chief executive Fred Goodwin has quit his position with immediate effect and is to be replaced by British Land boss Stephen Hester. RBS chairman Tom McKillop will now retire.
  • HBOS announced that its chief executive Andy Hornby and its chairman Lord Dennis Stevenson will stand down from their posts.
  • RBS and Lloyds TSB/HBOS are to return mortgage and small-business lending to 2007 levels, which is much more than they are currently lending.

Other developments today have included:

  • Major central banks saying they would offer financial institutions an unlimited amount of short-term dollar loans to help stem the crisis.
  • This morning the FTSE 100 index rose by about 6% as investors reacted to the news, with banks among the winners.

Gordon Brown said the bail out was “not just money being pumped in” but was “essential for all of us”. He added that that the government was “not a permanent investor in UK banks”, and hoped this would thaw frozen money markets.

“Its intention, over time, is to dispose of all the investments it is making as part of this scheme in an orderly way,” Mr Brown said.

One condition of the deal is that none of the senior directors will receive a cash bonus this year, with any future bonuses to be paid in the form of shares – a move aimed at encouraging management to take a more long-term approach.

The government is to buy £5bn of preference shares in RBS and another £15bn of ordinary shares if the bank is unable to find willing investors - which many analysts expect will be the case.

“It’s immensely regretful we’re coming to shareholders to raise funds again, it’s something we feel bad about,” said RBS chairman Sir Tom McKillop.

HBOS is to raise £11.5bn from taxpayers, made up of £8.5bn in ordinary shares and £3bn in preference shares. Lloyds TSB is to get £5.5bn. However, the money is on condition of the banks’ merger going through.

Lloyds TSB and HBOS have said the deal will still happen, but terms have had to be renegotiated.

Last month a £12.2bn deal was agreed, but the value of HBOS shares has since plunged and the extent of the recapitalisation has highlighted its weakness.

Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every HBOS share they hold – down from the original deal of 0.83.

Barclays has said it is to raise £6.5bn of new capital, which it will raise from private investors, rather than going to the government. Barclays also plans to scrap its final dividend payout for 2008, saving it £2bn.

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