* RBS set for biggest loss in British corporate history
* RBS sees up to 28 bln stg loss, shares slide by two thirds
* Lloyds falls 33 pct as UK bailout package overshadowed
* HSBC says will not need capital from Britain
* Lending rules relaxed for nationalised Northern Rock
(Adds fresh analyst comment, RBS CEO comment, updates shares)
By Myles Neligan and Paul Hoskins
LONDON, Jan 19 Royal Bank of Scotland (RBS.L)
unveiled the biggest loss in British corporate history,
overshadowing a second banking sector bailout and sending its
shares reeling to their lowest in over a quarter of a century.
RBS said on Monday it was on course to report a 2008 loss of
up to 28 billion pounds ($41 billion) and that further hits from
bad debts were inevitable, bruising the European banking sector
.SX7P, which fell 8 percent to a 13-year low.
News of RBS's record-breaking deficit came as the government
announced a second support package for banks designed to counter
recession by kick-starting lending to businesses and consumers.
The scheme failed to reassure investors, however, and RBS
shares closed down 67 percent at 11.6 pence, having earlier
slumped to 10 pence.
Other bank stocks also tumbled, with Lloyds Banking Group
(LLOY.L) down 34 percent on the first day of trade following its
takeover of HBOS last week.
Shares in Barclays (BARC.L) lost 10 percent, reversing
earlier gains after the bank responded to a 25 percent slide on
Friday by saying its 2008 profit was set to come in ahead of the
5.3 billion pounds currently pencilled in by analysts.
Analysts said uncertainty over whether the government's
rescue plan would have the desired effect had compounded the
damage done by RBS's warning that the size and timing of future
credit losses "cannot be predicted".
"The read across to other stocks is not great," said Simon
Willis, banks analyst at NCB Stockbrokers. "How much capital is
enough? The answer is nobody knows."
"The bottom line is that nobody knows whether the
government's new proposals will work, or will be enough. They're
short on detail in some respects."
As part of Monday's support package, Britain said it would
swap preference shares it already holds in RBS for ordinary
stock, raising the country's stake to near 70 percent from 58
percent but saving RBS from having to pay interest to the
government for an earlier capital injection.
In a conference call with reporters, RBS chief executive
Stephen Hester played down concerns the government's increased
stake was a precursor to full nationalisation.
"The UK government has made it very clear in October and
again now that its preferred option is not to take into
nationalisation the banks," he said.
The latest support comes three months after the government
provided 37 billion pounds in capital to RBS, Lloyds and HBOS.
Analysts at Nomura said there was still a risk that the
government might take full ownership of banks as a radical means
of restoring the flow of lending.
"We would suggest that if the latest set of measures proves
insufficient, then the authorities are likely to feel that they
have little alternative to full nationalisation," they said.
In a further attempt to stimulate lending ahead of figures
later this week that are expected to confirm Britain is in
recession, the government said it would relax lending
restirictions on nationalised mortgage lender Northern Rock.
The bank had been encouraging customers to remortgage
elsewhere as part of a strategy to pay off a 26 billion pound
emergency government loan.
Separately, London-listed HSBC (HSBA.L), Europe's biggest
bank, said on Monday that it "cannot envisage" ever asking the
British government for capital.
"HSBC has long been one of the world's most strongly
capitalised banks and is committed to maintaining this
position," the bank said in a statement. Its shares ended 6.5
percent lower at 501 pence, a 10-year low.
For more stories on the package, click on [ID:nLJ166881]
(Editing by Dan Lalor)