BANKS FACE WIPEOUT! – Labour hints at state takeover

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The first banks to get money under the UK government’s £500bn bank rescue plan are expected to do so this morning.

Over the weekend, the banks and Treasury officials have been working on announcements on the handing over of an expected £36bn, to be made before the stock markets open.

The government is preparing to take controlling stakes in the Royal Bank of Scotland (RBS) and HBOS, two of the banks worst affected by the financial crisis.

Share prices in RBS fell by 24% on Friday, and HBOS by 29%.

HSBC and Barclays are set to follow, as their share prices fell by 70% and 34% respectively.

The share price of HBOS merger partner Lloyds TSB fell by just over 22%.

Any move to state control would make the Brown government the biggest shareholder in the RBS and HBOS, putting billions more pounds of taxpayers’ money at the disposal of the banks.

RBS is expected to want £15 billion in return for a government controlling stake, and HBOS, £10 billion.

The move would leave the government owning 70% of HBOS and 50% of RBS.

The Treasury announcements are expected to state what the government requires the banks to do in return for the cash.

Chancellor Darling told the BBC on Saturday: ‘What we’re doing over the weekend is looking at specifics, how do we implement it.

‘We’ll be making an announcement at the beginning of the week.’

Chief secretary to the Treasury Yvette Cooper said: ‘What we’re doing now is talking with all of the banks about how we implement the programme.

‘We’ll set out the sort of strings that will be attached on a case-by-case basis.’

The announcements will follow a volatile week when the FTSE 100 index in London collapsed by 21.1%, its worst weekly fall since the crash of 1987.

The Dow Jones in New York fell 18% in the last week while the Dax in Frankfurt fell 21.6%.

Meanwhile, the Libor rate, at which banks lend to each other, has risen despite aggressive measures from governments worldwide to tackle the credit freeze.

At the end of its meeting in Washington on Saturday, the International Monetary Fund (IMF) warned that the world financial system is teetering on the ‘brink of systemic meltdown’.

IMF chief Dominique Strauss-Kahn said: ‘Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.’

Last Friday, G7 ministers released a five-point plan that aimed to free up the flow of credit, back efforts by banks to raise money and revive the mortgage market, but did not say how.