Oct. 13 (Bloomberg) -- Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc will get an unprecedented 37 billion-pound ($64 billion) bailout from the U.K. government as Germany, France and Spain prepare similar rescues.

In exchange, Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, halt dividends and stop paying cash bonuses to directors. Germany, France and Spain will separately provide their banks with as much as 960 billion euros ($1.3 trillion) in loan guarantees and capital.

The U.S. Federal Reserve, European Central Bank and the Bank of England will offer banks unlimited dollar funds for the first time in an attempt to ease the money market tensions that have toppled seven European lenders in as many weeks. The region's benchmark stock indexes tumbled 22 percent last week, helping to erase more than $25 trillion from global equities in 2008. European leaders agreed this weekend to guarantee new bank refinancing, and use state cash to stop lenders collapsing.

``They have no choice,'' said Dirk Hoffmann-Becking, an analyst at Sanford C. Bernstein & Co. in London. ``Paulson, Bernanke, Darling, Merkel, Sarkozy, Trichet & Co. will throw whatever they can at the problem until something sticks.''

Stocks rallied in Europe, with the benchmark Dow Jones Stoxx 600 Index jumping 9.1 percent to 223.79, the biggest gain on record. The U.K. pound surged the most in 12 years against the dollar, strengthening as much as 2.4 percent to $1.7443.

Libor Falls

The cost of borrowing in dollars for three months fell from the highest level this year. The London interbank offered rate that banks charge each other for such loans slipped 7 basis points to 4.75 percent today. It was at 2.82 percent a month ago.

RBS will get 20 billion pounds, while HBOS and Lloyds will raise 17 billion pounds between them, the companies said in separate statements today. RBS Chief Executive Officer Fred Goodwin and HBOS CEO Andy Hornby will also step down.

The government is set to take a 60 percent stake in RBS, and will own 43.5 percent of Lloyds and HBOS, which plan to combine in a government-brokered deal. The government's stake will drop if the banks can raise the money from institutional investors. Barclays Plc, based in London, said it will try to raise more than 6.5 billion pounds without the government's help.

Shares Drop

RBS slumped 8.4 percent to 65.7 pence in London trading, below the 65.5 pence price at which the government will buy the shares. The bank said it would be difficult to forecast results for the second half of the year ``with precision.'' HBOS sank 28 percent to 90 pence, less than the government's 113.6 pence a share offer. The bank said full year earnings would be hurt by writedowns and increased funding costs.

``The government will end up with a big share of the banks,'' said Colin Morton, who helps manage $3 billion at Rensburg Fund Management in Leeds, England. ``You are getting heavily diluted as a shareholder. It's a long haul for shareholders as profits will be diluted away substantially.''

In return for the money, the banks pledged to continue lending to small businesses and selling mortgages ``at 2007 levels'' for the next three years, and devise plans to allow people who fall behind on mortgage payments to remain in their homes. The banks won't pay dividends until the government's preference shares are paid back.

Bradford & Bingley

The takeovers mark the implementation of a 50 billion- pound rescue package announced by Brown last week for British banks struggling after credit markets seized up and home prices dropped. In the past year, the government nationalized lenders Northern Rock Plc and Bradford & Bingley Plc.

``We are going through quite extraordinary circumstances the world over,'' Chancellor of the Exchequer Alistair Darling said on GMTV today. ``It's very, very important to the future not just of British banks, but working our way through with other governments what is a truly international problem.''

In the U.S., Treasury Secretary Henry Paulson will tap some of the $700 billion financial-rescue package approved by Congress this month to buy equity in financial companies.

Governments in Germany, France, Belgium and the Netherlands have also stepped in to rescue real estate lender Hypo Real Estate Holding AG, Dexia SA and Fortis. Iceland's three largest banks collapsed in the past month.

Germany, France

In Germany, Chancellor Angela Merkel's government pledged 400 billion euros in loan guarantees, provided as much as 80 billion euros to recapitalize banks in distress and set aside 20 billion euros in its budget to cover potential losses from loans.

French President Nicolas Sarkozy said the government will set up a 360 billion euro package of financing to shore up the country's banks. The measures include 320 billion euros of loan guarantees and 40 billion euros to buy stakes in capital-starved French banks.

Spain's cabinet today approved measures to guarantee up to 100 billion euros of bank debt this year and authorized the government to buy shares in banks in need of capital. Prime Minister Jose Luis Rodriguez Zapatero told a news conference in Madrid that the measure was ``preventative and precautionary.''

The British funding will allow the banks to boost their so- called Tier One capital ratio to more than 9 percent, the government said. RBS's Goodwin and Chairman Tom McKillop will step down, as will HBOS's Hornby and Chairman Dennis Stevenson.

``The government is not a permanent investor in U.K. banks,'' the Treasury said. ``Its intention, over time, is to dispose of all the investments it is making as part of this scheme in an orderly way.''

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: October 13, 2008 11:49 EDT