Britain’s support for its banks has hit 850 billion pounds in the wake of the global financial crisis, a watchdog report said Friday, amid tensions over performance pay for senior bankers.
The National Audit Office said Prime Minister Gordon Brown’s government was justified to spend the “unprecedented” amount on rescuing the banks, which went into meltdown after the collapse of US investment bank Lehman Brothers in 2007.
“It is difficult to imagine the scale of the consequences for the economy and society if major banks had been allowed to collapse,” said NAO head Amyas Morse for the release of the report Friday.
“The Treasury was justified in using taxpayers’ money to safeguard savings and stabilise and restore confidence in the financial system. “But the big question is what all of this will eventually cost the taxpayer. This will take time to answer,” he added.
Britain was among countries that spent billions of pounds bailing out leading banks including Royal Bank of Scotland (RBS) and Lloyds Banking Group
(LBG) during the crisis, while Northern Rock was nationalised outright.
LBG is 43-percent owned by the taxpayer while RBS, ravaged by the credit crunch and the takeover of Dutch giant ABN Amro at the top of the market, is set to become 84 percent state-owned after the latest bailout.
The government’s rescue packages, including purchase of shares, guarantees, loans and insurance schemes made to financial institutions, totalled 850 billion pounds (933 billion euros, 1.40 trillion US dollars), the NAO report said.
Some 117 million pounds has been spent on buying shares in and lending directly to the banks, and the government will have handed over another 107 million pounds by April 2010 to financial advisers about handling the crisis.
Despite the injection of money, banks are unlikely to meet targets set for increased lending to businesses in recession-hit Britain, one of the conditions for receiving the bailouts, the report said.
Both LBG and RBS are however on target for mortgage lending.Morse said the eventual sale of RBS and LBG will be “crucial” to determining the final cost to taxpayers of rescuing such institutions.
The report comes amid a row over bonuses for bankers, with reports Friday that 200 executives at LBG are set to receive a one-off payment worth up to 80 percent of their annual salaries.
Staff will receive the money for integrating Lloyds with HBOS in a government-brokered deal, which has led to more than 11,000 job losses at the combined bank since January, according to The Times.
Brown on Thursday sought to defuse tensions seen emerging between Royal Bank of Scotland and the government over planned cuts to bonuses.
The board of ailing bank RBS could resign in protest at the Labour government’s plans for a crackdown on performance payments, reports said.
Some observers blame the bonus culture of the world’s two pre-eminent financial sectors — the City of London and Wall Street — for encouraging excessive risk-taking, which helped to tip the global economy into chaos.
