RBS will try and raise £15 bn of ordinary share capital by way of a government underwritten issue, and in addition the government will buy £5 bn worth of preference shares. As a result of the move it was announced that Sir Fred Goodwin (aka Fred the shred for his knack of cutting costs) was to leave the bank after eight years at the helm.
HBOS and Lloyds TSB will take up to £17 bn of goverment injections, while Barclays has said it will raise £6.5 bn itself, which includes suspension of its 2nd half dividend at a saving of £2 bn. Following the recapitaisation the banks will all have tier 1 capital ratios of above 9%, which is in excess of international standards.
In return for the bailout the banks will have to refrain from paying their directors cash bonuses this year, and instead will have to take shares, a trend that is likely to be seen throughout the banking industry in the future as risk management will be at or near the top of the agenda. Owning shares will hopefully make for more strategic medium to long term decision making.
The markets seem to have taken the announcment well, shortly after opening the FTSE 100 was up just over 200 points, representing an increase of more than 5% over Friday's close.
