Holding out the beggar bowl in London

This was submitted by a reader: LONDON (AP) – The British government injected an unprecedented 37 billion pounds ($63 billion) into some of the country’s leading banks Monday to avoid a full-scale collapse of the sector.

In return for the rescue, the Royal Bank of Scotland Group PLC, Lloyds TSB Group PLC and HBOS PLC will cede major stakes to the government and halt cash bonuses for bank board members this year. The banks also will be required to lend more money to small- and medium-sized businesses and homeowners in a bid to rescue the country’s housing market.

“The action we are taking today is unprecedented but essential to all of us,” said British Prime Minister Gordon Brown. “We must in an uncertain and unstable world be the rock of stability upon which people can depend.”

The humiliation of holding out the beggar bowl to the government prompted the resignation of a handful of senior executives at the banks, where the government will now have the right to appoint board members and fix dividends.

The deal will leave taxpayers owning as much as 60 percent of RBS and 43.5 percent of the merged Lloyds HBOS bank _ the two are in the process of combining.

The government said its stake in each of the banks is strictly temporary, but the subsequent transformation of the sector is on the massive scale of the postwar bank nationalizations in the 1940s and the privatization of the industry in 1980s.

“The hope is that today will mark a watershed, with vast measures of government reassurance finally rekindling some confidence in the shattered banking sector,” said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

The government said that it will buy 5 billion pounds ($8.6 billion) of preference shares directly and underwrite 15 billion pounds ($25.7 billion) of ordinary shares in RBS. The preference shares carry a fixed interest payment _ the equivalent of a dividend _ of 12 percent.

If no other investor comes forward to buy those shares, as many analysts anticipate, the government will invest the full 20 billion pounds ($34.5 billion) itself.

It is investing a further 17 billion pounds ($29.2 billion) in LLoyds TSB and HBOS.