Lloyds shares halve in value in two days over nationalisation fears



Shares in Lloyds Banking Group crashed by nearly a third yesterday amid fears it cannot survive the recession without more state cash.

Taxpayers already own a 43 per cent stake in the bank, which was formed on Monday from the rescue takeover by Lloyds of HBOS, owner of Halifax.

But the halving of the share price in two days sparks fears this could soon become a majority stake.

Another drop: Lloyds Banking Group shares almost halved in value today on the back of a 35 per cent plunge yesterday after it absorbed HBOS

The run on the stock is a nightmare for investors, including many pensioners who used to rely on the bank’s generous dividends to provide an income in retirement.

Many are furious at Lloyds’ decision to rescue HBOS which they say has ruined its reputation for being a prudently-managed safe haven.

Yesterday a Lloyds spokesman insisted the bank had no desire to see the Government’s stake increase but experts say the bank may yet have to ask the Government for more help.

Its shares dived 47 per cent at one stage and closed down 31 per cent at 44.8p.

Other bank shares also continued their freefalls yesterday with Royal Bank of Scotland dropping another 11.2 per cent to close at just 10.3p. Barclays fell 17 per cent to 72.9p.

On the brink: Royal Bank of Scotland shares clawed back slightly today after a 67% plunge following its revelation it is facing a £28bn loss for 2008

Experts say the market has been spooked by fears the Government’s second banking bail-out, revealed on Monday, will not stop the rot.

Sandy Chen, from the stockbroker Panmure Gordon, said yesterday that RBS shares may be worth as little as 5p.

The wider FTSE 100 Index closed down 17.1 points at 4091.

The removal of the ban on short-selling as of last Friday - by which traders bet on falling shares - has added to the sense of panic.

The Prime Minister yesterday lashed the 'recklessness' of RBS chiefs and the Treasury insisted the Government will do 'whatever is necessary' to protect savers.

RBS customers were reassured their money was safe as the Government has repeatedly made clear it will not allow a bank to fail.



The taxpayers' stake in the bank now stands at 70 per cent - up from 58 per cent after the latest rescue measures but with its shares in freefall, experts predicted ministers may have little choice but to step in and buy it outright.

Its bosses said they discussed full nationalisation with the Treasury but that it was 'something they all wanted to avoid', although some experts warn it may be necessary.



Vicky Redwood, from Capital Economics, said: 'We still think that the government may eventually have to set state-decreed targets for the banks to lend, perhaps via further nationalisation.'



Analysts at Nomura added: 'We would suggest that if the latest set of measures proves insufficient, then the authorities are likely to feel that they have little alternative to full nationalisation.'

On Monday the Government hurled more public cash at the industry in a determined attempt to get it lending again. Developments included:

● A Treasury scheme to offer Government insurance for up to £260billion in worthless 'toxic assets' held by the banks;

● A £100billion guarantee for mortgages to encourage banks to lend to homebuyers;

● A £50billion Bank of England scheme to buy assets of private firms and financial institutions to inject cash into the economy;

● A European Commission forecast that the economy will shrink dramatically this year by 2.8 per cent and Government debt will soar to 72 per cent of output in 2010;

● Calls for former RBS boss Sir Fred Goodwin - nicknamed 'Fred the Shred' - to be stripped of his knighthood.

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Crucially, the Prime Minister stopped short of putting a figure on his scheme, drawing Tory claims that he has written a 'blank cheque' that leaves the taxpayer dangerously exposed.

Some estimates put its potential value at £410billion, pushing the amount committed by the taxpayer to prop up the banking system since last year at nearly £1trillion.

Labour MPs looked stunned as Chancellor Alistair Darling explained the latest move just three months after £37billion was used to save the system from collapse.

Treasury officials warned that the package, which was welcomed by business and economists, will need time to feed through the industry.

But Shadow Chancellor George Osborne told MPs: 'The first bail-out of the banks has failed and now they have no option but to attempt a second bail-out - a bail-out whose size we still don't know, whose details remain a mystery and whose ultimate cost to the people of Britain will only be known when this Government has long gone.'

Ministers rushed out the package after days of uncertainty on the markets saw banks around the world come under intense pressure.

The RBS meltdown was triggered by its

admission that it will reveal the biggest financial loss in British corporate history next month.

In a veiled apology, new RBS boss Stephen Hester said the bank, which owns NatWest and the Queen's bankers Coutts, had important lessons to learn and that the first stage was to ‘fess up’.

It came as experts warned that the bail-out was just a stepping stone to the full-scale nationalisation of more banks - possibly within weeks.

Mr Brown said his intervention was about helping businesses and families by encouraging banks to start lending again.

And Mr Darling and Mr Brown stressed it was not Government policy to own or run banks, as officials pointed out that RBS was not suffering from funding difficulties.

With assets estimated at nearly £2trillion, which is bigger than Britain 's entire economic output, Whitehall insiders there was no cause for emergency action to take control of RBS.

● Business has claimed that a raft of new regulations will cost it £1billion a year.