Politician urges Britain to nationalise RBS, Lloyds

LONDON – The chairman of the British parliament’s Treasury Committee urged the government yesterday to nationalise Royal Bank of Scotland and Lloyds Banking Group as the global financial crisis deepens.

John McFall, a prominent legislator in Prime Minister Gordon Brown’s Labour Party, made the call in a column in the Financial Times written jointly with Jon Moulton, the head of private equity firm Alchemy Partners.
McFall and Moulton said there seemed to be considerable expectation that Britain would nationalise at least RBS and Lloyds Banking Group.
‘If it is to happen, the sooner the better. Let us get it over with – nationalise the pair of them,’ they wrote.
Both banks are now part-owned by the British government but they, and the government, oppose full nationalisation.
Shares in Lloyds , already 43 per cent owned by the government, and Barclays fell heavily on Tuesday as concern resurfaced they may need state help to repair their balance sheets.
Shares in Royal Bank of Scotland, which lost two thirds of its value on Monday after a record loss prompted Britain to raise its stake in the bank to 70 per cent, fell another 11 per cent. Analysts highlighted the risk of nationalisation.
The government threw Britain’s troubled banks their second multi-billion-pound lifeline in three months on Monday but the package failed to reassure investors spooked by deepening recession.
Nationalising the banks would pose serious risks, including raising the question of whether it would hurt Britain’s credit rating to own such large balance sheets, and to some extent these risks would probably all happen, McFall and Moulton wrote.

‘LEAST WORSE COURSE’

‘But things are so bad that the least worse course is to accept nationalisation of these banks,’ McFall and Moulton said.
Nationalisation would allow the authorities to use the banks to restart the flow of credit, tempering the recession.
It would also allow the banks to sort out their toxic assets ‘in an unrushed and orderly process,’ they wrote.
‘Over a few years, it would be possible to clean up and simplify these banks and return them to private ownership in a good state,’ they said.
Lloyds Banking Group Chairman Victor Blank said on Monday the bank did not want the government to raise its stake. RBS said on Monday that full nationalisation had only been discussed with the government ‘as something that we all want to avoid.’
The Independent newspaper reported yesterday that Barclays was under intense pressure from shareholders to bring forward its full-year results. A rushed trading update from the bank late on Friday said 2008 profits would be ahead of expectations, but the move failed to reassure investors.
The Financial Times quoted City Minister Paul Myers as saying on Tuesday the government’s insurance scheme for toxic bank assets would probably last between five and nine years.
The newspaper also quoted Nick Clegg, leader of Britain’s second-biggest opposition party, the Liberal Democrats, as saying Britain must prepare to ditch the pound and join the euro to salvage the public finances and prevent the ‘permanent decline’ of London’s financial district. – Nampa-Reuters