Senior British Banking Execs Fall By The Wayside

A number of the upper echelon in British banking are resigning from their jobs due to the Government's new ground rules seeking lower-pay and more regulation in banking.

Sir Fred Goodwin, a hero in the world of Scottish business, just announced his resignation from the Royal Bank of Scotland. Andy Hornby and Lord Stevenson of Coddenham also announced that they would leave HBOS as soon as the Lloyds TSB takeover is finished. All three agreed to waive their compensation. Goodwin would have received £1.2 million. Hornby would have received £975,000. Lord Stevenson expected £740,000.

More departures are expected in the near future. Sir Tom McKillop, the chairman for RBS, announced that he will leave after next April's annual meeting. The rumors are that he would leave now, but he's waiting for a suitable replacement. Johnny Cameron, the chairman for RBS's global markets is already stepping down.

For now, it appears that Stephen Hester will step up to fill Sir Fred's spot. Hester is currently the CEO of British Land. He made his fame in the world of high-street banking through his efforts to fix Abbey National. Sir Fred will stay on board for the next few weeks until Hester is free.

All of these announcements were on the heels of the Treasury's recent announcement concerning the £37 billion rescue that the three banks would receive to aid their balance sheets. Once the deal is done, it's likely that they'll own 60% of RBS and 43.5% of Lloyds/HBOS. This package was granted in return for a guarantee that all three banks would keep offering competitive rates for small business loans and mortgages. The companies also had to agree to significantly reduce boardroom salaries and bonuses. No director will be awarded a cash bonus during this year, and any subsequent bonuses must be linked to total long-term creation of value balanced against the risk involved. The Treasury will also have input on the appointment of various non-executive directors for the board.

The only real surprise in the deal. The Treasury opted for ordinary shares. All expectations were that they'd seek preference shares. Ordinary shares lack the automatic dividend and they are a bit risky. The purchase does count toward the market though, and it should aid their faltering stock prices. This decision will also leave the government with a bigger return if the bailout succeeds. There was another surprise in the financial world as Lloyds announced that it would lower the price for HBOS shares in the coming takeover. They have denied this possibility for the past few weeks, but just announced that they will only pay 0.605 for HBOS shares. This is a 27% decrease from the recent offer.

The numbers for the rescue are coming in too. RBS is accepting £20 billion. £15 billion will be bought by the Government in the form of ordinary shares. The other £5 billion will be spent on preference shares. HBOS will accept £11.5 billion. Ordinary shares will account for £8.5 billion and preference shares will cover the rest. Lloyds TSB will accept £5.5 billion. £4.5 billion will be in the form of ordinary shares with £1 billion as preference shares. All banks will pay 12% interest on these preference shares to the Government.

Barclays is taking a serious risk by refusing to accept Treasury money now. It believes that the needed £6 billion can be raised through current shareholders. They expect to gain £3 billion from the sale of ordinary shares and £3 billion from the sale of preference shares. If they cannot raise the funds, they will have to accept the Treasury's deal later with tougher requirements. Barclays has already cut the £2 billion final dividend for this year and guaranteed that another £1.5 billion would be found through additional savings.

The total package is expected to shore up the crumbling banking industry. The Treasury defends the decision as a necessary means to increase the banks' capital while also encouraging more lending between the banks. The decision should ultimately restore consumer confidence and increase their ability and willingness to lend.

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