Wed, Dec 15, 2010 page6

• Bank of England’s head plotted secret bailout, cables show

  • The Guardian, LONDON
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  Bank of England governor Mervyn King was so concerned about the health of the world’s banks in March 2008 that he plotted a secret bailout of the system using funds from cash-rich nations, diplomatic cables released by WikiLeaks revealed.

  Six months before the world financial crisis reached its peak, forcing taxpayers to rescue collapsing financial institutions, King told US officials in London that the UK, US, Switzerland and Japan could jointly facilitate a multibillion-pound cash injection into global banks, overriding the “dysfunctional” G7 nations.

  The leak may allow King to claim that he — rather than former British prime minister Gordon Brown — was one of the brains behind the bailout of the banks, which took place in October 2008.

  According to a US embassy cable, King told Robert Tuttle, the US ambassador to Britain, and US Deputy Secretary of the Treasury Robert Kimmitt, who was visiting London, that there needed to be a “coordinated effort to possibly recapitalize the global banking system” as well as a way to rid the banks of the toxic loans on their balance sheets.

  The ambassador said in the cable, dated March 2008, that King’s proposals “were not casual ideas developed in the course of a luncheon conversation. It was clear that his principal objective in the meeting was to outline his outside-the-box thinking for Kimmitt. King suggested that the US, UK, Switzerland and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks.”

  The group would have been in addition to the G7, which comprises the finance directors of Canada, France, Germany, Italy, Japan, the UK and the US. King seemed worried that the G7 did not include cash-rich China, Singapore or well-off countries in the Middle East, saying the G7 was “almost dysfunctional on an economic level” as a result.

  “It could be a temporary group and he suggested that perhaps the central banks and finance ministers of the US, the UK and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks,” the cable said. “King said Japan might not be included because it has little to offer.”

  King had spelled out to the US officials that he was certain the UK’s banks would need fresh cash.

  “He said it is hard to look at the big four UK banks [Royal Bank of Scotland, Barclays, HSBC and Lloyds TSB] and not think they need more capital. A coordinated effort among central banks and finance ministers may be needed to develop a plan to recapitalize the banking system,” the cable said.

  It seems likely the banks identified in the cable were provided as examples for Washington rather than named by King.

  Shortly after the meeting between King and the US officials, leading UK banks began trying to shore up their balance sheets by launching cash calls on their shareholders. RBS stunned the markets in April 2008 by preparing the ground for a ￡12 billion (US$19 billion) rights issue. HBOS, later rescued by Lloyds, tried — and failed — to raise ￡4 billion from its shareholders, while Bradford & Bingley, later part-nationalized, also tried to raise fresh funds.
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