• Shares plunge as recession bites
• Highest jobless rise in 17 years
• Lloyds wants easier repayment
• PM calls for new economic rulesJill Treanor, David Gow Ian Traynor and Nicholas
Watt
• Highest jobless rise in 17 years
• Lloyds wants easier repayment
• PM calls for new economic rulesJill Treanor, David Gow Ian Traynor and Nicholas
Watt
The Guardian, Thursday October 16 2008
Gordon Brown and José Manuel Barroso, EU commission president, urged concerted action on the global economy yesterday. Photograph: Geert Vanden Wijngaert/AP
Gordon Brown's lauded banking bail-out risked unravelling last night as Lloyds TSB lobbied the government to ease the repayment conditions attached to an emergency injection of taxpayers' money.
The urgent attempt to renegotiate parts of the bail-out terms - and allow rescued banks to pay a dividend to their shareholders - came as the stock market wiped out all of the gains made in the euphoria following the bank rescue package, amid anxiety that the global economy was plunging into recession.
The FTSE 100 index lost more than 7% - a 315-point fall and its fifth biggest percentage fall in history - after figures showed unemployment rose at its fastest rate for 17 years, the last time the UK was in recession.
The chancellor, Alastair Darling, insisted last night that a deal was a deal on the bank bail-out, and he would not "put billions into banks only to see it disappear out of the door [to shareholders] again". He told BBC Newsnight: "All the banks knew what was on offer. They knew the terms and conditions and they signed up to them."
However, he added that it was up to the banks if they came up with a "demonstrably better deal". Last night a source indicated that there could be room for compromise on the government's insistence that all preference shares owned by the government be repaid before the bank could pay a dividend to shareholders.
Yesterday's financial mood was further darkened when David Blanchflower, a labour market expert and member of the Bank of England's monetary policy committee, said the 164,000 rise in the jobless total to 1.79m was "truly horrendous and much worse than I had feared". He added that he expected the jobless total to be more than 2 million by Christmas.
Fears of deep recession also stalked Wall Street, where the Dow Jones industrial average closed 733 points down after US retail sales suffered their biggest drop in more than three years.
As Britain's dole queues lengthened and the likelihood of recession hardened, Gordon Brown went to Brussels to rally a European summit behind a call for concerted global action on the financial meltdown. The prime minister said his three-pronged plan to stabilise Britain's banks and his success in selling the blueprint to most of Europe at the weekend was stage one of his campaign. Now, he said, world leaders needed to hold a summit by the end of the year to write a new rulebook for the globalised economy.
He said the Financial Services Authority was considering whether to raise the limit on compensation paid to those individuals whose savings were lost in a bank collapse. The European commission is proposing an EU-wide €100,000 (£77,000) guarantee on deposits, with the sum being repaid within three days.
But while Brown was being feted in Brussels for his bail-out plan, which has been replicated across Europe and copied in the US, banks involved were trying to alter the terms attached to the £37bn of taxpayers' money earmarked to buy shares in Lloyds TSB, HBOS and Royal Bank of Scotland.
Lloyds TSB, whose takeover of HBOS was personally brokered by Brown, was understood to be keen to alter the conditions attached to the terms on which repayments are to be made to the taxpayer.
Lloyds' shares have been driven lower by concern that it would be weakened by the takeover of HBOS, which in turn forced Lloyds into taking part in the bank bail-out package. Even though HBOS was one of only two FTSE 100 shares to end the day in positive territory, taxpayers are sitting on losses of more than £2bn because the government is offering to pay more for the shares than the 85p at which they closed last night. Lloyds was also trading at 150.2p, below the 173.7p at which the government has agreed to buy shares, while RBS ended at 65p, 0.5p below the price paid by the government.
Under the government's bail-out terms Lloyds and RBS are unable to pay dividends to their shareholders until preference shares sold to the government are paid off. This could take up to five years - something that Lloyds shareholders are particularly angry about, as they are used to receiving healthy twice-yearly payments from the bank.
It is thought Lloyds is looking for ways to restructure its capital raising, perhaps by selling preference shares to investors other than the government, or even increasing the £4.5bn issue of ordinary shares it also has planned.
The Guardian has learned that the European commission forced the government to ban the dividend pay-outs on the three banks taking part in the bail-out as the price for winning its approval under EU competition rules. It is understood that this was one of up to 10 conditions imposed by Brussels on the government as it sought clearance for its £500bn capital injection, debt guarantee and liquidity funding scheme last weekend.
Neelie Kroes, EU competition commissioner, and her senior officials insisted upon the dividend ban as long as the government held preference shares in the affected banks. They said this would act as an incentive for the banks to repay the capital as soon as possible.
Initially, it is understood, the government suggested that penal interest rates would act as an adequate incentive, but Brussels toughened this condition up along with other UK proposals during the negotiations which began in the middle of last week. The EU also imposed a limit on a rise in lending by the part-nationalised banks which the government had ordered to resume lending at 2007 levels.
Gordon Brown and José Manuel Barroso, EU commission president, urged concerted action on the global economy yesterday. Photograph: Geert Vanden Wijngaert/AP
Gordon Brown's lauded banking bail-out risked unravelling last night as Lloyds TSB lobbied the government to ease the repayment conditions attached to an emergency injection of taxpayers' money.
The urgent attempt to renegotiate parts of the bail-out terms - and allow rescued banks to pay a dividend to their shareholders - came as the stock market wiped out all of the gains made in the euphoria following the bank rescue package, amid anxiety that the global economy was plunging into recession.
The FTSE 100 index lost more than 7% - a 315-point fall and its fifth biggest percentage fall in history - after figures showed unemployment rose at its fastest rate for 17 years, the last time the UK was in recession.
The chancellor, Alastair Darling, insisted last night that a deal was a deal on the bank bail-out, and he would not "put billions into banks only to see it disappear out of the door [to shareholders] again". He told BBC Newsnight: "All the banks knew what was on offer. They knew the terms and conditions and they signed up to them."
However, he added that it was up to the banks if they came up with a "demonstrably better deal". Last night a source indicated that there could be room for compromise on the government's insistence that all preference shares owned by the government be repaid before the bank could pay a dividend to shareholders.
Yesterday's financial mood was further darkened when David Blanchflower, a labour market expert and member of the Bank of England's monetary policy committee, said the 164,000 rise in the jobless total to 1.79m was "truly horrendous and much worse than I had feared". He added that he expected the jobless total to be more than 2 million by Christmas.
Fears of deep recession also stalked Wall Street, where the Dow Jones industrial average closed 733 points down after US retail sales suffered their biggest drop in more than three years.
As Britain's dole queues lengthened and the likelihood of recession hardened, Gordon Brown went to Brussels to rally a European summit behind a call for concerted global action on the financial meltdown. The prime minister said his three-pronged plan to stabilise Britain's banks and his success in selling the blueprint to most of Europe at the weekend was stage one of his campaign. Now, he said, world leaders needed to hold a summit by the end of the year to write a new rulebook for the globalised economy.
He said the Financial Services Authority was considering whether to raise the limit on compensation paid to those individuals whose savings were lost in a bank collapse. The European commission is proposing an EU-wide €100,000 (£77,000) guarantee on deposits, with the sum being repaid within three days.
But while Brown was being feted in Brussels for his bail-out plan, which has been replicated across Europe and copied in the US, banks involved were trying to alter the terms attached to the £37bn of taxpayers' money earmarked to buy shares in Lloyds TSB, HBOS and Royal Bank of Scotland.
Lloyds TSB, whose takeover of HBOS was personally brokered by Brown, was understood to be keen to alter the conditions attached to the terms on which repayments are to be made to the taxpayer.
Lloyds' shares have been driven lower by concern that it would be weakened by the takeover of HBOS, which in turn forced Lloyds into taking part in the bank bail-out package. Even though HBOS was one of only two FTSE 100 shares to end the day in positive territory, taxpayers are sitting on losses of more than £2bn because the government is offering to pay more for the shares than the 85p at which they closed last night. Lloyds was also trading at 150.2p, below the 173.7p at which the government has agreed to buy shares, while RBS ended at 65p, 0.5p below the price paid by the government.
Under the government's bail-out terms Lloyds and RBS are unable to pay dividends to their shareholders until preference shares sold to the government are paid off. This could take up to five years - something that Lloyds shareholders are particularly angry about, as they are used to receiving healthy twice-yearly payments from the bank.
It is thought Lloyds is looking for ways to restructure its capital raising, perhaps by selling preference shares to investors other than the government, or even increasing the £4.5bn issue of ordinary shares it also has planned.
The Guardian has learned that the European commission forced the government to ban the dividend pay-outs on the three banks taking part in the bail-out as the price for winning its approval under EU competition rules. It is understood that this was one of up to 10 conditions imposed by Brussels on the government as it sought clearance for its £500bn capital injection, debt guarantee and liquidity funding scheme last weekend.
Neelie Kroes, EU competition commissioner, and her senior officials insisted upon the dividend ban as long as the government held preference shares in the affected banks. They said this would act as an incentive for the banks to repay the capital as soon as possible.
Initially, it is understood, the government suggested that penal interest rates would act as an adequate incentive, but Brussels toughened this condition up along with other UK proposals during the negotiations which began in the middle of last week. The EU also imposed a limit on a rise in lending by the part-nationalised banks which the government had ordered to resume lending at 2007 levels.
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