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 18 Sep 2014, 11:30 ET Lloyds Banking Group twelve month chart
price change %
75.87 p +

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 18 Sep 2014, 11:36 ET Royal Bank of Scotland Group twelve month chart
price change %
357.20 p +

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 Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 180.

    One RBS source tells me: "We have off shored many resource". Don't worry though, it doesn't matter that they don't know how to do the job - It's YOUR children and grand children that will foot the bill via QE and more taxes.

    Our government, are selling us down the river !!! (as usual, filling their boots!)

  • rate this

    Comment number 179.

    Prudeboy @171
    "History by
    the victors"

    And heckling

    Funding likely of mock protest and straw-man attack

    Another long-run partnership underway in Stephanomics comment

    Going happily nowhere… worth every $… to some

    Robert writes of disappointment, "as tax-payers we"

    And "we" are the lucky ones, in work & earning

    Counted amongst 'victors'?

    Tempting Fate

    Tragically, betraying the future

  • rate this

    Comment number 178.

    Walter @177
    "does not work"
    True, but neither does corrupt 'statism'

    Record of history can be confusing
    Private & state find excuse in each other

    Confusingly, not really 'ownership' that kills
    Merely people taking personal advantage

    For all to be Good Stewards
    Freed from conflict of interest
    Need only agree Equality
    Partnership for 'God & Man'

    Thatcher Blair Cameron on-side!

  • rate this

    Comment number 177.

    Both Labour and Conservatives champion the "privatisation" of the public sector. Isn't this a fine example of the failure of the private sector. In fact privatisation has been a disaster for the tax payer. This policy simply does not work. The policies of Mrs Thatcher has led to massive, institutional, un-regulated greed at the cost of the tax payer. Time to think again. If it does not work,change

  • rate this

    Comment number 176.

    Yet again .....The political equivalent of trying to polish a we know who will be holding the parcel when theres no money left dont we ???? the good old taxpayer !!!

  • rate this

    Comment number 175.

    ... oooor we could pass a law banning either of them from paying dividends until they have bought back every share at cost price, plus inflation?

    It's about time the rules were stacked in favour of the tax payer for a change.

  • rate this

    Comment number 174.

    AndrewDundas @172
    "windfall profits"

    Even with respect to a state or business, internal haemorrhage of global or national currency needs serious address

    If such haemorrhage reaches private pockets, much worse: "no man can serve two masters", conflict of interest will doom

    Only with Equal Democracy agreed, & operational, can joy unconfined be known, all free 'in conscience', all knowing all well

  • rate this

    Comment number 173.

    Andrew Dundas @172
    "our calculations"?

    Tangled web runs back and back
    Accountant's Dream, the People's Nightmare
    Beyond all sense to follow

    Time to press RE-SET
    To make democratic equality inalienable

    We need near-all to understand, not all-the-future but at least enough, for all to choose Liberty above the lures of Fear & Greed

    Thinking small, 'busy no end', we perish

    This is no small world!

  • rate this

    Comment number 172.

    Two observations:
    1. The money 'lost' by taxpayers from Osborne's hand-out of Corporation Tax cuts for the rich are worth far more (£21 BILLIONS by 2015) than either of the two banks, and
    2. The recipients of PPI & other compensations are the taxpayers who scooped our money.
    Shouldn't those windfall profits be part of our calculations?

  • rate this

    Comment number 171.

    #170. Vegraj
    Shades of what happened in Sri Lanka?

    History is written by the victors,

  • rate this

    Comment number 170.


    "Why have I had to watch Russia Today News to learn about this 'story' ? This should be on the front page of every newspaper & news gathering website, inc this one."

    Basically the establishment doesn't want us to know anymore than necessary, they must be cursing the internet, imagine how hidden the story would of been then, Move along now nothing to see here !!!

  • rate this

    Comment number 169.

    "estimated £150m for failed West Coast mainline"

    Does that include the £40m or so in wasted consultant's fees?

  • rate this

    Comment number 168.

    The people of Iceland have forced the resignation of their government, rewritten their own constitution, de-centralised their entire banking system and yet we hear nothing of this in the news. Why?

    The Icelandic revolution will not be televised.

  • rate this

    Comment number 167.

    "Who will dictate"
    Sorry, need to complete registration

    Nod to John Donne & Newton, quietoak@157

    But amongst 400 Stephanomics comments, expressing concern for "the People" & for Values lost in surrender to Fear & Greed, no voice raised for the alternative, Equal Partnership

    Rather, we wait: for desperation, the mob, emergence of 'leaders' & their 'selection of fittest', re-run of C20, on speed

  • rate this

    Comment number 166.

    "our taxes"

    Tax supposedly given by, not taken from, 'citizens of a democracy'

    Given objection to the amount & uses of 'our taxes', then the first of questions to be asked: whether - in what sense - 'our democracy' delivers 'our government'

    Can 'we' - warring public-sector beggars & private-sector barons - reasonably be 'represented' by MPs taking high incomes with secure pensions?

  • Comment number 165.

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

  • rate this

    Comment number 164.

    Bigger than banking

    "Who will dictate Europe's future?"

    Courageous at first sight, but Stephanie Flanders' view is of the 'leading runners', rather as in a comical by-election

    For many, UK Citizens & Licence-Payers, no comment allowed, even on dictatorship!

    "Sorry, you need to complete your registration details" - months on, still a dead-end

  • rate this

    Comment number 163.

    Neil Postlethwaite @161
    Just worst?

    Re-possess inalienables all?

    To be 'in control' of own working lives, affairs of our world, the quality of hope for our children, we need no complex and contentious processes of 'nationalisation'

    Just one declaration of 'Emergency', for real democracy: for 'rationing' of all income, creating Equal Partnership, enabling conscience 'for the best' in all

  • rate this

    Comment number 162.

    Waiting for Bankot?

    Cannot or will not save selves?

    Trust in Quislings of Mammon to 'wonder how best' Aggregate Demand might be stabilised in decline!

    Our advice for the wider stage, on Greece etc, only mockery

    Europe might have saved from worst of UK/US banking bust: but our electionering Buggins had to out-do "Austerity", noisily excessive and asymmetric

    Confidence trashed all-round

  • rate this

    Comment number 161.

    - RBS
    - Lloyd's Banking Group
    - The Rump of Northern Rock
    - Government Property
    - Network Rail

    fold it into a Norwegian Style Government Pension Fund Sovereign Wealth Fund. The asset's should grow over time or be sweated to make some money like abandoned government land.

    Spin forward 30 years, and we should have a multi Trillion Pound wealth fund to pay pensions, and not the tax-payer.


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