Word: bailouts
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...fruits of tense negotiations between the government and British lenders - talks given added urgency by the meltdown in global markets at the end of last week - the bailout is breathtaking for its scale. British taxpayers are on the hook for a $34 billion investment in the Royal Bank of Scotland (RBS), Britain's second-largest lender, a cash injection amounting to almost double the bank's current market capitalization. Most of the investment will take the form of ordinary shares, which private investors are invited to purchase along with the government. But under the deal, those shares yield no dividends...
...bosses at RBS, the bailout will be particularly humiliating. Only last April, the Edinburgh-based bank called on investors for some $20 billion in much-needed capital, after subprime-related losses - and an ill-timed takeover last year of Dutch bank ABN Amro - blew a big hole in its balance sheet. "It's immensely regretful we're coming to shareholders to raise funds again," said RBS chairman Tom McKillop. "It's something we feel bad about." So bad, in fact, that McKillop now plans to quit next year; RBS CEO Fred Goodwin resigned Monday, as did his counterpart at HBOS...
...does need to be effective. Following the British bailout, the three British banks will now have capital ratios above 9%, by the most important measure, well above international minimum requirements - "a level that should put them on a strong footing for the future," the Treasury reckoned in a statement. Having bet big, the government, for one, will be hoping that stronger future arrives soon...
...where an ill-considered, offhand remark by politicians can cost businesses and shareholders millions of dollars. With stock markets reeling, the slightest hint of corporate instability today can sink stock prices, making it unwise to suggest that financial titan X may be in danger of joining the roster of bailout candidates...
...Still, Kroeber and others stress that China may choose not to participate in a global bailout because leaders will have their hands full at home. Tougher economic times could affect the country's social stability, meaning leaders will direct their focus inward. "China's resources are strong enough to ensure its own economy can sail through this relatively smoothly," says Kroeber. "But they can't save anyone else's bacon...