Treasury plans to take emergency stakes in corporate casualties

The Treasury is understood to have approached a City figure who has worked for the Government before to lead a 'bailout taskforce'

Virus cells and pound coins
Britain faces up to three months of shutdown which could wipe 15pc off growth in the second quarter

The Treasury is preparing contingency plans to take emergency stakes in companies threatened with collapse by the coronavirus.

It is understood that it has approached a City figure who has worked for the Government before to lead a “bailout taskforce” which would inject vital funds into potential corporate casualties in return for equity stakes.

A senior City source said: “This is work all night, sophisticated stuff, and as and when it moves it will have to move incredibly quickly. In three or four weeks’ time they will be deluged.”

The leader of the group is expected to bring in a team from top investment banks and be “ready to sit down and do deals”.

“A couple of calls have gone out from the Treasury and it will be done very quietly,” the insider said. “This is going to be bloody hard work, it’s not a sinecure. There will be a lot of pressure, and stewards’ inquiries afterwards.”

The potential options under consideration for ailing but strategically or systemically significant sectors, such as airlines with grounded fleets and specialist manufacturers, are loans which convert to equity stakes if not repaid within a certain period.

Alternatively the Government could underwrite rights issues, leaving the taxpayer with shares if companies are unable to raise funds from the market.

The exercise would echo the emergency measures used by the Treasury in 2008 to recapitalise banks. Those negotiations were led by Sir John Kingman, the former senior Treasury official, who has since gone on to become chairman of insurer Legal & General, with help from other senior figures such as Robin Budenberg a former UBS banking veteran.

The scope of the Treasury’s potential move could be much broader however, as Britain faces up to three months of shutdown which could wipe 15pc off growth in the second quarter.

The prospect of taxpayer equity stakes has already been raised however by Rain Newton-Smith, the CBI’s chief economist, who told the Treasury select committee last week that it could be a potential way to get funds to the “stranded middle” of UK firms shut out from Government support schemes.

She raised the possibility of loans that convert into equity if not repaid within six months. She said: “If the Government is just giving direct grants to some of these businesses they don’t have a way of recouping some of their investment.”

The TUC is meanwhile pressing for caps on CEO pay and higher worker wages in return for taxpayer funds.

Steve Baker, a member of the Treasury select committee , said: “I’d be very concerned over the consequences and how they might be unwound. For the Government to take equity stakes in firms is obviously highly undesirable but given the scale of the economic hit we’re about to take as a result of this pandemic, it may be a necessary pill to swallow – but bitter it will be.”

The Treasury declined to comment.

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