Peter Hoskin

The bailouts get bigger and bigger

The bailouts get bigger and bigger
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Today's yet another downturn milestone.  As RBS announces the largest annual loss in UK corporate history, the Treasury's set to make the bank the beneficiary of what could be the biggest bailout so far.  Robert Peston sets it out thus:

"The Treasury has announced that we as taxpayers will provide insurance to Royal Bank against future losses on £325bn of loans and investments.

First losses of up to £19.5bn on those impaired assets will be taken by Royal Bank.

But to prevent the losses wrecking the bank, we as taxpayers will be injecting up to £19bn of new capital into it, in the form of non-voting shares.

Also, losses greater than £19.5bn will be born by us - by taxpayers. In a prolonged severe recession, those losses could be substantial.

What we're getting in return is a £6.5bn fee - in the form of yet more of these non-voting shares.

And RBS has given a legally binding commitment to increase lending by £25bn in 2009." After days of wrangling between the Treasury and the bank, the final terms seem quite favourable to RBS.  The overall £325 billion figure is certainly larger than expected; while, to my knowledge, the 'first loss' and 'fee' figures are lower.  It just goes to show how desperate the Government is to get banks lending again, and you can expect a similar set-up to be announced for Lloyds sometime over the next couple of days.  It'll be nice - and surprising - if it all goes to plan.  But if it doesn't, the taxpayer's in for a vicious fiscal kicking.