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UPDATE 2-UK names head of new agency to manage bank stakes

Published 11/03/2008, 03:19 PM
Updated 11/03/2008, 03:22 PM
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(Recasts; adds details from parliamentary hearing)

By James Davey and David Milliken

LONDON, Nov 3 (Reuters) - Britain said the chairman of supermarket chain J Sainsbury , Philip Hampton, will oversee a new government holding company to own stakes in major high street banks, details of which were unveiled on Monday.

A senior British Treasury official closely involved in the government's 37 billion pound ($60 billion) plan to recapitalise British banks, John Kingman, will be chief executive of the new body, UK Financial Investments Ltd (UKFI).

Chancellor of the Exchequer (finance minister) Alistair Darling confirmed to a parliamentary committee that UKFI would be run at arm's length from the government and on a commercial basis, and did not aim to hold big stakes in banks for the long term.

The British government is likely to become the largest shareholder in HBOS -- the country's biggest mortgage lender -- Royal Bank of Scotland and Lloyds TSB unless private investors show unexpected demand in upcoming share issues by the banks.

Northern Rock, which was already nationalised, and part of Bradford & Bingley will also be owmed by UKFI.

The government has backed a takeover of HBOS by Lloyds, and Darling said there was no alternative bid on the table, despite reports that an unnamed European bank might be preparing a counterbid. For details, see [ID:nL2041439]

"Indeed it is open to anybody else to come along and put in a bid for HBOS. The only thing I'd have to say to you is that so far no other bid has been put in place," he told legislators.

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The pro-independence Scottish National Party (SNP), which runs Scotland's regional government, has criticised the HBOS takeover for weakening the Scottish financial sector.

However, Bank of England Governor Mervyn King said HBOS had no future as an independent bank even before the Lloyds' offer.

"HBOS was suffering from a very rapidly falling share price and clearly a loss of confidence that was undermining its ability to operate as an independent entity. The only alternative to a merger would have been a full-scale nationalisation," he said.

BONUS PRESSURE

The government's increased control over many British banks will put it under pressure to justify the high salaries paid to bankers at a time when unemployment is forecast to surge above 2 million in a workforce of just over 30 million.

"We don't expect many bonuses at all to be paid in the banking system next year," Darling said.

The Treasury said in a statement announcing UKFI's creation that it would seek to "ensure management incentives for banks in which it has shareholdings are based on maximising long-term value and restricting the potential for rewarding failure."

The government also wants banks to lend to borrowers with good credit under terms similar to those that existed before the past year's financial crisis. It also aims to sell off its stakes in the banks over time.

"The government will not be a permanent investor in UK financial institutions and will over time seek to dispose of the investments in an orderly way, through sale, redemption, buy-back or other means," the Treasury said.

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UKFI is wholly owned by the British government. In addition to Hampton, who was Lloyds' finance director until 2004, and Kingman, there will be two more government officials on the board and three private-sector representatives.

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