UK Banks are Asking Taxpayers for More Money

Due to the global economic crisis, UK banks are forced to ask for more money from the taxpayers by increasing the banks’ funding requirements. The government has said that the bank’s Tier 1 capital should be increased to an average of 10% from the present 9%.

The Halifax Bank of Scotland (HBOS), Royal Bank of Scotland (RBS), Baclays, and Lloyds TSB held a weekend talk with Treasury officials. They worked out the terms of the bailout deals, in which the government pledges to buy more than £35 billion in bank shares. As understood, £15 billion is sought by RBS, £10 billion for HBOS, £7 billion for Barclays, and up to £5 billion shares for Lloyds TSB. Barclays will also attempt to raise funds from private investors, including sovereign wealth funds.

However, if the banks cannot raise the capital they need by asking shareholders for more money in return for new shares, the government will buy the leftover shares. But the government says that only preference shares will be acquired with a fixed dividend payment. Yet, preference shares never count towards Tier 1 capital. Because of this, banks are more exquisite to issue ordinary shares, a common share that most investors own. Usually, investors are paid a dividend amount that depends on the company’s revenue rising or falling, whereas investors with preference shares receive a fixed dividend regardless of whether a company goes bust or not, and they have no say in how the company is run. As a result, taxpayers will be put at risk by the institution.