Taxpayers 'liable' for £500bn RBS/Lloyds bad loans - papers

Taxpayers may become liable for £500bn worth of bad loans and investments made by Royal Bank of Scotland and Lloyds Banking Group, according to the BBC.

It would be part of the government's Asset Protection Scheme, under which taxpayers insure banks against future losses from such assets.

RBS has a Thursday deadline to agree terms, while Lloyds has until Friday.

The idea is to draw a line under bad assets to free up cash that the banks can lend to companies and individuals.

BBC business editor Robert Peston says that if the deal is completed, it will take the total support by British taxpayers to the banks to £1.3tn.

That figure, made up of loans, guarantees, insurance and investments, is equivalent to the entire annual output of the UK economy. RBS and Lloyds are understood to be hoping to insure £250bn of assets each.

SOME OF THE CITY'S SHREWDEST hedge fund investors, who made millions of pounds betting that UK bank shares would fall, have turned their guns on insurers amid heightened worry about the financial strength of the sector, The Times reports.

Lansdowne Partners, which spent three years gambling on the collapse of Northern Rock, and made huge profits when the bet paid off in the fourth year, has gambled tens of millions that the share prices of four household-name insurance companies will fall.

Lansdowne, founded in 1998 by Paul Ruddock and Steven Heinz, disclosed yesterday that it had a short position in Prudential, Britain's No 2 insurer, worth about £10.5 million; a £26.2 million bet against Aviva, owner of Norwich Union; and further gambles against Legal & General (L&G) and Old Mutual. With the exception of the Pru, insurers' shares have continued to fall.

SENIOR CITY BANKERS ARE demanding pay rises of up to 10 per cent this year to make up for the clampdown on the bonus culture, a senior City head-hunter has told The Independent.

Shaun Springer, chief executive of Napier Scott, which specialises in recruiting senior bankers for posts in Europe, Africa and the Middle East, said bankers were attempting to rebalance their financial packages in favour of higher salaries. And he predicted that, over the next few years, city salaries could more than double to compensate investment bankers.

"Base salaries are being increased by somewhere between 5 and 10 per cent, by rule of thumb, to compensate for an overall fall in the remunerative package," said Mr Springer.

"This is being done in recognition of perhaps a long-term change, in which one can envisage basic salaries in the long term doubling or tripling or quadrupling compared to where they are today and bonuses falling by as much as 80 per cent."

MEANWHILE A FRESH DISPUTE over rewards for banker failure erupted yesterday as Northern Rock said that it was planning to pay bonuses to senior executives even as it reported a £1.4 billion loss, reports The Times.

The controversial pay scheme emerged as the nationalised bank - with the backing of the Treasury - announced a spectacular strategic U-turn, abandoning its drastic slimdown policy in favour of a new £14 billion mortgage lending splurge.

The bank said that 100 senior executives were eligible for the 2008 bonus scheme, which was necessary to ensure that it could continue to recruit and retain good people.