|Darling: £260bn bank bail-out is best for Britain Posted by Jamie at 9 02 PM on Saturday, March 7|
THE taxpayer takeover of Lloyds bank is essential if Britain’s economy is ever to recover, the Chancellor insisted last night.
The government took a controlling 65 per cent share in Lloyds Banking Group in a deal which also sees it insure £260 billion of toxic loans. It previously had a 43 per cent stake.
Alistair Darling said: “This agreement is another vital step in our efforts to clean up banks’ balance sheets and give them the strength and confidence to increase their lending.”
The Treasury will also buy billions of pounds’ of non-voting shares that can be upgraded later, potentially taking its interest to 75 per cent.
The government has already fully nationalised Northern Rock and Bradford and Bingley and has an 84 per cent share in RBS. Ministers were forced to bailout Lloyds after it bought HBOS, which recently reported an annual loss of nearly £11 billion. Lloyds made a profit of £807 million last year — albeit 80 per cent down on the previous. But it had to absorb massive HBOS losses. The government has forced through a far tougher package than the Lloyds board had hoped. It strongly opposed becoming majority public-owned.
Now ministers will be able to set the bank’s agenda. Under the deal Lloyds has been ordered to provide an extra £28 billion of extra mortgage and business lending over the next two years. Mr Darling said it “gets to the heart of the problems we face” as a result of the global credit crunch by easing the flow of credit in the economy.
The £260 billion insurance deal is part of the Treasury’s taxpayer- backed Asset Protection Scheme to insure banks riskiest assets against further losses. The bank pays a £16 billion fee to take part in the scheme.
And Lloyds will also have to take an initial £25 billion hit on any losses before the insurance kicks in. RBS has also signed up asking the government to insure £325 billion of bad debts.
Shadow Chancellor George Osborne said: “For the size of the British economy we have spent more than any other country on bailing out our banks and there’s precious little to show for it.”