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RBS and HBOS the plot thickens

Royal Bank of Scotland (RBS) looks like being the first benefactor and victim of the UK government's move to inject up to £50 billion into the UK banking sector. RBS has asked the government for assistance which will mean a £20 billion capital injection via a share issue. It is thought that the government will be left with the vast majority of the shares leaving it with a stake of up to 60% in the business.

This is going to cause a major headache for the government if existing shareholders do not step forward to join in the fund raising, although the fact the government will offer firm guarantees on inter bank lending should improve sentiment. However, UK investors are both wary of the economy and the government's direct interest in the banking sector where there are sure to be a number of conflicts of interest.

It is vital that the UK financial sector is protected but at what cost?

In many ways the government is damned if it does and damned if it does not - if they inject capital they stand accused of riding over the top of shareholders and if they do nothing they stand accused of "fiddling while Rome burns".

News of HBOS is expected soon but may well be along the same lines although the shadow of Lloyds Bank does muddy the water somewhat.

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