New company to manage Governments shareholding in banks
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03 November 2008
Arrangements for managing the Government’s shareholding in banks subscribing
to its recapitalisation fund were announced today by Chancellor of the
Exchequer, Alistair Darling.
The Government’s investments will be managed on a commercial basis by a new
arm’s-length company, ‘UK Financial Investments Limited’ (UKFI), which is wholly
owned by the Government. Its overarching objectives will be to protect and
create value for the taxpayer as shareholder, with due regard to financial
stability and acting in a way that promotes competition.
UKFI will work 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. It will also oversee the conditions of the
recapitalisation fund, including maintaining, over the next three years, the
availability and active marketing of competitively-priced lending to home owners
and small businesses at 2007 levels.
Membership of the UKFI Board will comprise a private sector Chair, three
non-executive private sector members, a Chief Executive and two senior
Government officials from HM Treasury and the Shareholder Executive. Sir Philip
Hampton has agreed to become the UKFI’s first Chair and John Kingman will become
Chief Executive. Both will take up these positions shortly. The remaining
private sector board members will be recruited expeditiously. These roles will
be filled by individuals of relevant commercial skill and experience to enable
UKFI to best meet the objectives set out above.
In due course, the Government intends that UKFI will manage its investments
in Northern Rock plc and part of Bradford & Bingley. These companies will
continue to have their own independent Boards and management teams, determining
their own strategies.
In addition to the recapitalisation fund and the credit guarantee scheme, the
Government will continue work to ensure that all lenders do everything they can
to support homeowners and small business during this period of financial market
- The Government will be underwriting capital investments for RBS and, upon
successful merger, HBOS and Lloyds TSB, totalling £37 billion.
- All three institutions subscribing to the Government’s bank
recapitalisation fund will be seeking shareholder approval for raising their
capital levels before the end of the year. The Government will then take
shareholdings in these banks on the terms agreed on 13 October, subject to
take up by existing or new shareholders of the ordinary shares and, in the
case of HBOS and Lloyds TSB, to the merger going ahead.
- Consistent with the agreements reached with the companies, UKFI will work
with the Boards to strengthen their membership through the appointment of
suitably qualified, independent non-executives. Final decisions will be taken
by the relevant company Boards.
- UKFI will support management incentivisation based on long-term value
maximisation, which attracts and retains high quality management and which
restricts the potential for rewarding failure. UKFI will also oversee the
conditions attached to subscribing to the Government’s recapitalisation fund,
including maintaining, over the next three years, the availability and active
marketing of competitively-priced lending to home owners and small businesses
at 2007 levels.
- 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, in accordance
with the UKFI’s objectives.
- Sir Philip Hampton was appointed Chairman of Sainsburys in July 2004. He
was Group Finance Director of Lloyds TSB Group plc from 2002 to 2004, Group
Finance Director of BT Group plc from 2000 to 2002, and has held a number of
other Finance Director positions. In the 2004 Budget Philip Hampton was asked
to lead a review of regulatory inspection and enforcement. This review
produced the Hampton Report , which informed the subsequent Regulatory
Enforcement and Sanctions Act 2008.
- John Kingman is Second Permanent Secretary and Managing Director, Public
Services & Growth, HM Treasury. Previous roles in the Treasury have included
Managing Director, Finance and Industry and Director of the Enterprise &
Growth Unit. John has worked on the Lex column of the Financial Times and in
the Group Chief Executive's office at BP. He has also been a Board Director
of the European Investment Bank, a non-executive director of Framestore CFC
Ltd, and a Visiting Fellow at the Institute of Political and Economic
Governance at Manchester University.
About the Author
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Article Published/Sorted/Amended on Scopulus 2008-11-06 12:13:50 in Business Articles