No RBS or Lloyds sale till 2014

 
Lloyds RBS

The privatisation of Royal Bank of Scotland (RBS) probably will not start till 2014, and for Lloyds the sale of the taxpayers' stake is not expected to begin until 2015. And even with that delay, taxpayers probably face big losses on the disposal of their shares.

When will taxpayers start to get any kind of a return from the semi-nationalisation of RBS and Lloyds, and how great will that return be?

Well, the timing of the privatisations is years away.

RBS's board is working on the assumption that the earliest that taxpayers could start to sell some of their 82% stake in the giant bank would be 2014.

As for Lloyds, it doesn't believe any of the 40% of its shares held by the Treasury will be sold till 2015.

Or to put it another way, there is a theoretical possibility that some of the government holdings in the two banks could be back in the private sector before the next election, due in 2015.

However, senior people at both banks say this possibility is only theoretical.

One RBS source tells me: "We want to give George Osborne the option of selling some of the shares in 2014 and we will prepare for that. But he may not want to sell then."

At Lloyds, the presumption is that it will be second in the privatisation queue. It believes the government wants to sell some of RBS first because with 82% of that bank's shares in taxpayers' mitts, RBS is too close to being fully nationalised for comfort.

"We assume we won't see any of our shares sold till 2015," says a Lloyds insider.

What about whether taxpayers stand a chance of getting their money back?

Slim-to-none, is the assessment of MPs on the Public Accounts Committee.

Their report, published today, on the Treasury's handling of the nationalisation and part-privatisation of Northern Rock, says:

"The £66bn cash spent purchasing shares in RBS and Lloyds may never be recovered."

Now in some ways that's just a statement of the arithmetically bloomin' obvious.

Lloyds Banking Group

Last Updated at 24 Jul 2014, 05:42 ET Lloyds Banking Group twelve month chart
price change %
73.72 p +
+0.09
+
+0.12

Lloyds' share price - at under 46p - is 38% below what taxpayers paid for their 40% stake. So the notional loss on the state's holding right now is just under £8bn.

As for RBS, its share price of 282p is 44% under the price paid by the Treasury. The paper loss is therefore a painful £20bn.

What goes down can bounce up again - but not for long or with much effect, if the falling body is the fabled dead cat.

What are the forces at work on RBS's and Lloyds' respective share prices?

Well, the cleaning up and reconstruction of both banks should be largely completed by the end of next year - and plainly, if the banks become conspicuously more efficient, they should be more valuable.

But the weights on the share prices are substantial. They include:

a) stagnation of the British and European economies;

b) the prospect of further losses on loans to zombie borrowers (businesses and households in "forbearance" on their debts);

c) restitution for the sins of the past (these include fines and damages relating to the Libor scandal, and compensation for PPI and swaps mis-selling).

And then there is the tension between the imperative of making the banks safer and maximising the short term value of the banks' existing equity or shares.

Royal Bank of Scotland Group

Last Updated at 24 Jul 2014, 05:42 ET Royal Bank of Scotland Group twelve month chart
price change %
326.50 p +
+2.90
+
+0.90

Or to put it another way, the more equity the banks are forced to hold as protection against losses, the less valuable - in the short term at least - the existing equity becomes.

That is because the existing equity would confer ownership rights over a smaller proportion of the existing assets, or because the need to conserve equity would reduce dividend payments to equity holders.

There is therefore an apparent paradox that minimising future losses to all of us from future banking crises, by forcing the banks to hold more capital, increases the net cost to taxpayers of the last crisis.

For example, Lloyds would like to resume paying dividends before it attempts to privatise any of the government's 40% holding.

But it cannot do that until it knows whether the European Union's Capital Requirements Directive 4 (CRD4) - which implements so-called Basel lll (stay with me) - will force it to hold additional equity.

So it will be next spring at the earliest, before Lloyds can have a meaningful negotiation with the Financial Services Authority (or rather by then, with the Bank of England, which is absorbing these prudential and supervisory responsibilities) on whether dividend payments can restart, because that is when CRD4 is now due to be published.

That implies Lloyds probably won't be able to start paying a dividend again till at least 2014 - and maybe even later.

But buying shares in a huge stagnant economy's biggest retail bank (Lloyds), when that bank doesn't even pay dividends, is not a desperately appealing prospect.

As taxpayers we should probably recognise rescuing Lloyds and RBS will never be seen as a free lunch, but it is turning into one of the longest most expensive lunches in history.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +4

    Comment number 100.

    These megabanks are too big anyway. We are never going to get our money back so lets make sure we get the banking system we need.

    Break them up by selling them off piece-meal. This will allow a true separation between the casinos and retail banks. There are potentially some very good business hidden away inside these corporate horrors. So let them break free.

    We need more smaller banks.

  • Comment number 99.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +1

    Comment number 98.

    I think the reason that the Vickers proposals implementation has been delayed for several years precisely because of RBS and its potential or necessary disposal.
    The concern being that the sale of RBS as a big mess and to foreign spivs will create a precedent that will de-rail the very best intentions of the essence of the Vickers report - for the sole benefit of bankers. - ie 'business as usual'

  • rate this
    +1

    Comment number 97.

    ...and in another of the writngs predictions - it appears that Israel and Palestine are going to start WWIII to distract all the sheepeople from the economic mess.

    There's nothing like a good war and the threat of nuclear attack from Iran to get people to sign away their liberties in return for the false promise of security.

    nobody can say they were not warned.

  • rate this
    -2

    Comment number 96.

    90.
    El Tel

    The bankers have a whole corrupt association to tell 'their side of the story' - it's called the BBA and it's headed by Anthony Browne - well know Tory supporter and ex-policy director for Tory Boris johnson.

    he also ran policy exchange - a right wing 'think' tank.
    http://en.wikipedia.org/wiki/Policy_Exchange

    So all non-partizan there then.

    The bleating of the banking fawners baah

  • rate this
    -2

    Comment number 95.

    See the Tories were right all along - should have kept the "light touch" approach, and deregulated and should have let the Banks and all people's savings go to pot!
    These stupid Lefties going around saving millions of jobs and keeping the Banking sector going - now we are all going to pay. Never mind the BoE can solve it all - just by Printing Money, oops sorry QE, which is much nicer!

  • rate this
    +1

    Comment number 94.

    The time to sell will be either when:

    "the current government has made a success of things"

    or

    "the previous government made an error that can no longer be tolerated"

    ie when it is politically most advantageous.

    Am fairly puzzled by most people posting on here who seem to think that public ownership equates to fairness, profitablility, risk free, and no political interference!

  • rate this
    +1

    Comment number 93.

    89. Wildwood - "What is the hurry to sell?"
    Don't you know there will be a general election in 2015!
    That money will be NEEDED!

  • rate this
    -1

    Comment number 92.

    There was a guy - he came here in 2008 and made it clear we were never going to get this money back..

    His name was writingsonthewall - and it appears he was right.

    Talk of 'taxpayer profit' was about as accurate as the BoE's GDP projections (which they just downgraded AGAIN this week)

    Clearly the truth is subject to revision at the BBC

  • rate this
    0

    Comment number 91.

    I'd say hold on to them. Convert them into the retail banks that we used to have and they will pick up customers and keep the other banks in check until someone has the courage to regulate them properly.

  • rate this
    -2

    Comment number 90.

    The BBC offering a further opportunity for the Bank bashers to offer only one side of the story.

  • rate this
    +2

    Comment number 89.

    What is the hurry to sell?

    In my experience the only times you would sell would be if the share price had fallen, as a stop-loss, or if you felt it was about to fall.

    Neither seems to be the case at the moment.

    I would guess the main pressure to sell would come from within the banks' boards in an effort to get HMG out of the picture.

  • rate this
    -2

    Comment number 88.

    I suppose it depends how you define loss.
    £20bn is small change compared to the costs of sitting back watching whole economy fall to pieces. Remember the UK can't go bust because Uncle Merv (and whoever comes next) has the keys to the printer.

  • rate this
    0

    Comment number 87.

    To sell these businesses back to those who corrupted them would be the height of stupidity. To sell them back at a loss to the tax-payer ought to be seen as a crime. But given that we have already made substantial losses on these banks and that the political system isn't listening and clearly lacks power I won't be holding my breath for any miraculous appearance of sense.

  • rate this
    +2

    Comment number 86.

    Probably best that the Government keep a Stake in these Banks, to keep a close eye on them. These Bank's continue to be ran by bullying and miss-selling and its only a matter of time before we get the next Scandal. The chief Executives of these Bank's continue to feel that they are untouchable and they are right in the Governments pocket.

  • rate this
    +1

    Comment number 85.

    83.inacasino
    Could we not make them into building societies?
    ====
    The good old days - how less the damage would have been if the now former Building Societies / now defunct bankrupt banks retained their former guise. Northern Rock, Halifax, Bradford and Bingley, Alliance and Leicester, Abbey....
    Thankfully we still have Nationwide and several regional ones left

  • Comment number 84.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 83.

    Could we not make them into building societies? Building societies are less attractive to criminals, I believe.

  • rate this
    -1

    Comment number 82.

    Before any sale is even contemplated the government will have to be 100% certain that there are no more skeletons in their closets. No more PPI nonsense, no more money laundering scams, no more tax avoidance schemes, no more LIBOR rigging and no more dodgy accounts for small businesses.

    These two banks may not have been involved with every wrongdoing of the recent past but we need to be sure.

  • rate this
    +3

    Comment number 81.

    Never getting it back. Indeed

    Establishments have always sought to silence those who pronounce uncomfortable truths

    Nothing new here Robert - we've long known it's a full scale Ponzi con

 

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