The government yesterday extended its stake in the Royal Bank of Scotland to 70 per cent as RBS headed for a record UK £27bn-£28bn loss.
RBS said it expects to report a deficit, before write-downs, of between £7bn and £8bn for 2008 and expects to write down £20bn assets, largely related to its takeover of ABN Amro in 2007.
The price of shares in RBS slumped by a massive 65 per cent in afternoon trading.
Meanwhile, at a press conference held before the stock market opened, prime minister Brown and chancellor Darling said that banks would not be legally obliged to lend to companies and individuals as part of a £200bn-plus bail-out package.
They announced a new ‘asset protection scheme’ under which, for a nominal fee, the banks will be able to call on the taxpayer to underwrite 90 per cent of their declared risky debts.
Brown and Darling said that other steps to be taken include altering the mortgage strategy of Northern Rock, ordering it to stop dumping its mortgage portfolio while giving the bank longer to repay government loans.
They added that the measures will be complemented by a new £50bn Bank of England scheme that will ‘help boost lending by banks and other financial institutions through the purchase of high-quality bonds’.
The move came as City economists, the Ernst & Young ITEM Club Winter predicted that the next 12 months will see the largest contraction in GDP since 1946.
The forecast sees UK GDP contracting by 2.7 per cent in 2009 with a further contraction of 0.5 per cent predicted for 2010, with a rise in unemployment to over 3.25 million by the end of 2010 and consumer spending declining by 2.5 per cent.
The ITEM Club’s prediction confirms that it is the working class and middle class that are expected to bear the full burden of the capitalist crisis with savage cuts in jobs, pay and benefits, and the destruction of the health and public services.
Meanwhile, the trade union leaders are full of praise for the Brown government and attempted yesterday to turn the truth upside down.
Unite joint general secretary, Derek Simpson said: ‘This new rescue package appears to be only one step removed from full-blown nationalisation.
‘The government is rightly taking increasing control of the banks in order to support jobs and the economy.
‘The government must continue to do what it takes to protect homeowners, savers and business.’
Unite added: ‘RBS employs 100,000 staff alone, it’s preparing to post the biggest loss in corporate history. The government must make job protection one of the conditions for increasing its stake in the banks.’
TUC General Secretary Brendan Barber said: ‘The government is absolutely right to take further action to bail out the banks. The alternative would be not just a prolonged recession, but slump.’
Barber warned that ‘ministers must also realise that there will be public anger that even more taxpayers’ money has had to be put into the banking system, particularly among those who face losing their jobs or homes because of the irresponsible policies pursued by the banks.’
He called for a public inquiry ‘into the behaviour of the banks, their advisers and their auditors’.
These trade union leaders will not defend a single job, service or benefit.
They must be replaced by those who will, through occupations and a national struggle to bring down Brown and go forward to a workers government and socialism.