Royal Bank of Scotland
RBS said the Treasury would inject a further 13 billion pounds to help the bank pay for a new scheme that will transfer most of the risk from 325 billion pounds worth of toxic RBS assets and risky loans to the taxpayer.
The so-called Asset Protection Scheme launched by the British Treasury on Thursday is expected to insure well over 500 billion pounds ($712 billion) worth of assets by the time other banks have signed up to it.
Banks around the world have trillions of dollars of potential losses on their books after the collapse of the U.S. property market triggered a credit crunch and then a full-blown global financial crisis.
Hiving off troubled assets and purging banks of their worst liabilities will be a focal point of discussion at next month's meeting of G20 finance ministers and central bankers in Britain.
So far, there has been little consensus and international meetings earlier this month simply had to agree on looking at a common set of principles.
RBS said it made a 24.1 billion pound ($34.3 billion) loss last year, the biggest deficit in British corporate history.
Surpassing a 21.8 billion pound loss by Vodafone in 2006, the deficit represents 16.2 billion in write-downs against RBS' acquisitions, including its 2007 takeover of parts of ABN Amro, and 7.9 billion pounds in operating losses.
RBS shares, which have lost 95 percent of their value since early 2007, were up 22.9 percent at 29.4 pence by 8:07 a.m. EST, while the FTSE 100 share index <.FTSE> was 1 percent higher. UK gilt prices fell sharply.
The favorable pricing of the asset protection scheme, along with the additional capital injection from the government, will remove the immediate capital concerns about RBS, Panmure Gordon analyst Sandy Chen wrote in a note to clients.
For now, the markets will probably focus on the favorable terms of this bailout.
Shares in Lloyds Banking Group
Lloyds said on Thursday that it was in talks with the Treasury about participating but that there was no certainty its involvement would be on the same terms as RBS.
RBS also unveiled plans to cut 2.5 billion pounds ($3.56 billion) in costs as part of a restructuring plan which will see it exit or reduce its presence in 36 of the 54 countries it operates in.
The 2.5 billion pound cost-base cuts will translate into tens of thousands of job cuts, said Martin Slaney, head of derivatives at GFT.
RBS chief executive Stephen Hester said the key building blocks for recovery were now in place with the insurance scheme providing the necessary stability to restructure.
That doesn't mean we will recover successfully, there's a massive amount of hard work to do and obstacles to overcome, but we now have the job of execution, Hester told reporters on a conference call.
Hester said he did not dissent with speculation that the number of job cuts at the bank could be as high as 20,000.
Under the insurance scheme, RBS will pay a 6.5 billion pound signing up fee and be responsible for the first 19.5 billion pounds of any losses. The taxpayer will be liable for 90 percent of any losses above and beyond that.
Hester said that while the government's voting rights would be capped at 75 percent, its economic stake in the bank could rise as high as 95 percent depending on the size of future losses against its insured assets.
The government currently holds 70 percent of RBS after it provided the bank with an emergency capital injection of 20 billion pounds last October.
In Edinburgh, the bank's home city, anger focused on former chief executive Fred Goodwin after it emerged the man blamed for allowing RBS to overreach itself was entitled to an annual pension of 650,000 pounds ($925,900) a year.
The amount being talked about is obscene. Does this man have a conscience? asked Derek Mortimer, a self-employed mortgage arrears councilor.
Banks have effectively been turned into gambling dens. The whole thing is symptomatic of human greed.
Vince Cable, spokesman for the opposition Liberal Democrats party, described the government's latest support package for banks as a disgrace, saying that unlike past bailouts the insurance scheme offered no prospect of a profit for taxpayers should the banks recover.
It's essentially transferring all of the risk onto the taxpayer, he told BBC television.
Under the conditions imposed by the scheme, RBS said it would raise its lending by an extra 25 billion pounds over the next 12 months and a further 25 billion in 2010.
(Additional reporting by Steve Slater, Matt Falloon and Christina Fincher in Edinburgh; writing by Paul Hoskins; editing by Hans Peters and Elaine Hardcastle)