Bank gave RBS and HBOS 'secret' £62bn loan

Royal Bank of Scotland (RBS) and HBOS were secretly kept afloat with £62 billion of emergency Government support at the height of the credit crisis last year, it was revealed today.

The Bank of England kept the massive liquidity injections secret until today, when it judged calm had been restored and there was no longer any need for secrecy.

The undisclosed support began for HBOS on October 1, two weeks after the collapse of America's Lehman Brothers and when financial markets were at their most panicky, and peaked at £25.4 billion on November 13. The money was eventually repaid on January 16.

RBS began tapping the Bank for liquidity on October 7 and at its peak borrowed £36.6 billion. It paid back all the money by December 16.

Both banks eventually provided the Bank with collateral with a value in excess of £100 billion. They were also charged fees by the Bank.

The so-called Emergency Liquidity Assistance was on top of billions of pounds of other support through loans and guarantees and the £37 billion of equity investment pledged to both banks and Lloyds TSB, which later took over HBOS.

The Bank, in evidence to MPs today, said in exceptional circumstances it acted as "lender of last resort" to financial institutions in difficulty. It said it had decided to use its powers to prevent disclosure of the support in its 2009 Annual Report.

"In most cases, confidence can best be sustained if the Bank's support is disclosed only when the conditions that gave rise to potentially systemic disturbance have improved to a point where the disclosure itself should not be a cause of such disturbance."

With RBS signed up for the Asset Protection Scheme, an insurance policy protecting it against losses on its toxic assets, and Lloyds embarked on its own £22.5 billion capital-raising scheme, "the Bank considers the need for secrecy has ceased," it said.

The disclosure is likely to intensify complaints from HBOS and Lloyds shareholders that they were not given the full picture when they were offered shares in earlier rights issues by the two banks in January. The Financial Services Authority is already investigating HBOS for alleged lapses in disclosure.

Lloyds revealed today the pricing for its record £13.5 billion rights issue which will see every British household sink a further £228 each into the lender.

As part of the fundraising, the Government will today plough another £5.7 billion of taxpayers' money into the bank that has already received £17 billion in state money, giving Britons a 43 per cent stake in the bank.

Today, Lloyds is demanding another £13.5 billion from its nearly three million shareholders to avoid the need for costly state insurance of its bad debt. It is doing this by selling 1.34 new shares to investors for every one share they already own priced at 37p.

(Published by Times Online - November 24, 2009)