Britain could pump about Ł45 billion ($77.77 billion) into four troubled major banks and take big stakes as part of a recapitalization due to be unveiled on Monday, sources familiar with the situation said.
Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays were in line to receive the billions of pounds from investors and taxpayers in a bid to rescue them from the impact of the global credit crisis, said the sources, declining to be named.
Media reports said Barclays was trying to raise cash from private investors rather than the government, but that the other three banks were expected to tap into a huge cash-pile made available by the government.
The rescue plan could result in the government becoming the biggest shareholder, and even a majority investor, in Royal Bank of Scotland and HBOS - effectively partly nationalizing two of Britain's biggest banks.
Talks among the banks, government officials and regulators were due to go on through the early hours of Monday to determine how much each would need from the Ł50 billion offered by the government last week to offset the global credit crunch.
An announcement was expected before markets open on Monday, but details were still being fine-tuned, said the sources.
Royal Bank of Scotland Group Plc may take over Ł15 billion, HBOS over Ł10 billion, Barclays may seek over Ł7 billion and Lloyds TSB about Ł5 billion, according to industry sources and media reports.
The banks are expected to try and sell shares to existing investors, backed by the government, which would buy the shares not taken by investors.
The government could take seats on the boards of banks, a government source said on Saturday.
“I believe the action we have taken in Britain will rebuild trust,” Prime Minister Gordon Brown told the BBC.
The Financial Times newspaper said Royal Bank of Scotland was expected to place shares with the government at 65 pence a share, compared to a closing price on Friday of 71.7 pence.
Royal Bank of Scotland's chief executive Fred Goodwin was widely expected to resign as part of the fund-raising deal and to be replaced by Stephen Hester, chief executive for British Land.
In addition to potentially taking ordinary shares, the government is expected to provide capital in return for preference shares, which could pay an annual dividend of about 10% but typically do not have voting rights.
The Financial Times said Royal Bank of Scotland could also raise Ł5 billion in preference shares, while HBOS may take around Ł3 billion.
Lloyds' rescue takeover of HBOS, announced last month and encouraged by the British government, was said in a number of media reports to be close to collapse or re-negotiation, although HBOS said on Sunday it “remains in place and on track”.
No government officials were immediately available for comment on the progress of the talks. The four banks all declined to comment on the negotiations.
The Daily Telegraph newspaper said banking shares might be suspended in London to give investors time to consider the plans.
A spokesman for the London Stock Exchange told Reuters on Sunday: “My information is that the market will open on Monday.” (Reuters)