Banking crash 'raises possibility of nationalisation'

20 January 2009

A sharp fall in the shares of some of the UK's leading banks yesterday represents a "vote of no confidence" in the government's latest bailout plan for the sector and raises the possibility of full nationalization, reports say.

The government yesterday (January 20th) announced that it will offer to insure banks against up to 90 per cent of potential losses linked to toxic assets.

Markets headed lower on the news, with shares falling across the banking sector. By early afternoon, Citywire reported that the newly-formed Lloyds Banking Group was down by 33.9 per cent, HSBC was down ten per cent and Barclays was 4.6 per cent lower.

Shares in the Royal Bank of Scotland (RBS), which also revealed that it expects its 2008 losses to be up to £28 billion ($39.3 billion), crashed by 63.4 per cent.

According to the Guardian, investors perceived a "lack of clarity" in the government's proposals. The true picture of the insurance scheme will not be seen for weeks because the Treasury will have to negotiate cover with individual banks, it said.

Neil Cumming of PSigma Asset Management told Citywire that there is a growing sense that banks are "sliding towards nationalization".

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